Daily Steel News - 12 Apr 10

Export prices jump in latest Japanese scrap auction
The highest winning bid in the export auction for H2 grade Japanese scrap held on 9 April by the Kanto Tetsugen group of scrap dealers increased by ¥5,050/tonne ($54/t) from last month’s auction. The winning bids were ¥39,100/tonne ($417.8/t) for 5,000 tonnes, ¥38,800/t for 10,000t and ¥38,550/t for two winners 6,000t and 5,000t. In total 26,000t was traded. “The winning bids were much higher than we expected and we were surprised,” a Tokyo-based scrap trader tells Steel Business Briefing. Trading sources in Japan believe that the cargoes will be exported to Taiwan or China, and that Korean mills, which have been holding off buying Japanese H2 grade scrap, will feel the urgency and may soon start lifting their offer prices. The trader says that the export price for Japanese scrap will continue to be strong and that Korean mills will soon bid at above ¥39,000/t fob. Korean mills last booked Japanese H2 scrap at ¥38,500/t fob, equivalent to ¥37,500/t fas about two weeks ago. The Japanese mini-mills may also have to lift their prices, in line with rising export prices, particularly since they are due to start securing sufficient scrap so that they can operate during Japan’s Golden Week holidays starting 29 April to take advantage of lower electricity rates. Tokyo Steel Manufacturing last raised its scrap buying prices by ¥1,000/t for all grades at all works effective 30 March arrivals. The H2 price at its Utsunomiya works in northern Kanto is currently ¥39,000/t.

UK scrap market direction unclear, say merchants
Not all UK scrap prices for this month are settled and views vary on the market’s direction, local participants tell Steel Business Briefing. Some scrap merchants say one domestic steel producer has agreed to price hikes as high as £50/tone for April deliveries, taking prices for obsolete material to around £260-280/t ($398-429/t) delivered, with shredded pegged at similar levels. Other mills will have to follow suit, they say. HMS 80:20 scrap has been sold at £295/t delivered into India, one merchant notes. “It is crazy, scrap should not jump by this much,” he continues. Mill inventories are low and material is scarce, one merchant adds, suggesting April prices have increased by £45-55/t depending on grade. However, other merchants believe the market is “overheated” and “overtalked”, with even smaller increases of £20-30/t unobtainable. Turkish buying, which had forced up prices considerably, seems to have hit a plateau for the time being, as most mills that wanted to buy have bought. “Turkish mills are pulling out of the market. Do not think this market is up, up and going to remain up forever,” one trader says. “The fundamentals have changed in that now steel order books are much better, but it will come down, there is no doubt,” he adds.

Monday Market Monitor - India (WEEK 14) - Longs start cooling off
Indian domestic steel prices exhibited mixed sentiments last week. After climbing for 5 consecutive week chinks began appearing for long products last week as they retracted by about 1%. But the loss is negligible as compared to the rally of more than 15% in 5 previous weeks. The price correction in last week, for long products especially rebars, strengthens our belief that the surge in prices during March was not on account of real growth in demand but was due to end users as well as stockiest preponing their purchases to avoid escalated prices in April as the general perception among them was that steel majors would go for a major hike on account of increased raw material costs. An important point to be noted is that the market for long product has weakened despite price hike announced by Indian steel majors and reflects the ground level situation as far as real demand pick up is concerned. On the other hand, the cost hype led price push prevailed for flat products although the current prices are far above the cost of Indian steel makers, even if we assume that they are paying spot prices for iron ore and coking coal, which probably they are not as some of tem have their own captive iron ore mines which results in less than USD 10 per tonne for own iron ore as against global spot levels of USD 170 per tonne. The surge in Indian domestic prices of flats has far exceeded rising global levels which are at USD 700 per tonne CFR levels, translating to INR 34,000 per tonne without MODVAT component. Indian steel minister Mr Virbhadra Singh during an interview expressed his concern on rising steel prices in India and warned that “I believe steel companies need to have a relook at prices because they have to do business with responsibility. Today, steel is not a luxury item, it is a necessary item. If prices are increased without justification, it will harm projects related to housing, road construction and highways. But steel is a deregulated subject and so the government has no control over its prices. What we do exercise is moral authority. I am going to soon tell them to hold prices. The present hike in prices has taken place on the basis of a high degree of speculation. The steel industry in India should not work as a cartel. I want a more responsible stance from them.”

Monday Market Monitor - Middle East (WEEK 14) – Hibernating
After unprecedented hike last 30 days, the steel market paused last week in most the markets in Middle East as the buyers went into hibernation and trade remained extremely thin. It seems that the shock of this surge put the buyers, especially projects, in a quandary as they have to review their project costs. As a result although the sellers and stockiest continued to offer at new levels, most of the buyers abstained from the market. In other words, the limited demand of steel has been further hit in the region as the steel prices increase was certainly not demand driven and was a result of hype created on cost push as well as surging import offers. The highest surge has been in the prices of rebars, which is an essential component for construction activity. Rebar prices have zoomed, in last 30 days, by 35% in Bahrain, 37% in Kuwait, 50% in Saudi Arabia and 46% in UAE. As a result respective governments are quite concerned on this surge and are planning to bring in some order to the market. On the other hand, buyers are hoping that this frenzy would end in some time and they would be able to resume buying steel at reasonable levels for their projects.

Monday Market Monitor - CIS (WEEK 14) - Unabated frenzy
The steel market at Black Sea remained in top gear last week and mills & sellers continued to hike their offers by each passing day. In case of billets, it was seen that some big market players suspended their offers adding fuel to the fire. It is rumored that traders are ready to buy at USD 620 per tonne to USD 625 per tonne FOB Black Sea but producers are already sure to achieve minimum USD 630 per tonne. So, it seems like rally continues but we have to see for how long as the average costing is mush lesser and mills are reported to be running hand to mouth on their order books. For finished longs also some of major steel mills held their offers and did not trade much last week. We heard that the biggest steel mill offered rebars at USD 660 per tonne to USD 670 per tonne on FOB basis and WRC at USD 670 per tonne to USD 690 per tonne. For finished flats, prices have risen last week. The Ukrainian quotations are now close to USD 650 per tonne to USD 660 per tonne for HRC and producers have already started to push prices up to USD 670 per tonne to USD 680per tonne FOB black Sea. The Russians current offers are at USD 680 per tonne to USD 700 per tonne FOB Black Sea. It seems like that more and more people are thinking about lasting of current trends and expect severe market correction.

Monday Market Monitor - Iron Ore (WEEK 14) - Crosses USD 170 CFR
Spot prices of Indian iron ore fines for higher and medium grades continued to march north last week with 3% to 8% gains on FOB India basis.

Some of the key factors affecting the iron ore market in India have been as follows

1. Severe crack down by government on illegal mining leading to curtailed availability and hiked prices on East Coast

2. Hike in railway freight by INR 300 per tonne

3. Imposition of 5% and 10% export duty iron ore fines and lumps

4. Iron ore majors Vale, BHP Billiton and Rio Tinto targeting quarterly pricing rather than annual with a 100% hike in prices leading to an imbroglio with Chinese buyers once again

5. Clamor by steel ministry for 20% export duty on iron ore fines to discourage export to augment domestic availability mills vie for capacity expansion.

6. Restrictive approach of Chinese buyers by banning import by traders with turnover of less than 1 million tonne is 2009

7. Banning import of lower grade iron ore below Fe 60% through traders

8. Banning import of iron ore for 2 months to arm twist Big 3 from dictating price levels for quarterly contracts.

9. Anticipated devaluation of Chinese currency under pressure from Western world.

All the above factors cumulatively is bound to exert downward pressure in the market sentiments as India being a major player in lower grade iron ore will be left with surplus volume to be ultimately diverted to domestic market thereby bring down the prices. However it should be music to Indian manufacturers in the long run as cost deescalates bloating their margin.


Extensive report on iron ore sector in India
The global iron ore market is hot. Everything good or bad about economic activities is visible here. On the one hand, there is strong recovery of demand with the global economic prospects back on track, statistically so till date, concerns nevertheless remain. On the other, speculators are back with panic driven Chinese steel industry rushing to build stock before they set the table for talks with the iron ore mining industry for the year’s contract. The spot prices for iron ore fines have shot over USD 145 per tonne on China’s coast. This means, the contracts for 2010 will be at levels at least 40% higher than in 2009. The Indian government’s action to impose an export tax on fines and raise the same on lumps will help the iron ore majors to stand firm in talks when it comes to the Chinese. Last year’ the Chinese mills made a strategic blunder not signing the annual contract. They won’t repeat that this time around. The future of the global iron ore industry depends on China. Many believe the steel industry’s growth in China will slow down. At this stage, such a statement will be termed speculative only. The Chinese mills, however, may not yield much ground. They will dig more into their own resources, import more from the spot market and thereby reduce their dependence on contracted volumes, if the prices are not favorable. They have also invested heavily overseas on iron ore assets and will bring in substantial quantities from there to meet some critical needs. The iron ore industry knows that pushing the Chinese mills to a tightrope will boomerang in the long term. More the Chinese mills are stressed, more assets will they acquire, which ultimately will reduce the dependence on the global iron ore cartel. China cannot be ignored by the iron ore miners after all they produce nearly half of world’s steel. A question has always been in the forefront : should the global coal or iron ore contracts be floating types indexed to steel prices, or a market based free float, or of a short duration, say, a month or a quarter? So far, the global majors, tied to annual contracts, have not been able to capitalize on the higher spot prices running through the year on the average. It is not necessary that this will happen every year. Yet, an optimistic mining industry globally is pushing for this. This will effectively bring an end to the annual contracts. The rise in global ocean freight has a very significant impact on the iron ore prices. A higher freight will effectively reduce the contract levels set on fob basis. Any attempt to push the burden of rising ocean freight on to the buyer will be resisted. And if iron ore shipping volumes drop, the dry bulk rates will also crash! One does not really know who will bear the brunt of this. It depends on the strength of the market: who is weak and who is not on the negotiating table. India has taken a protectionist stance. The government needs revenue to support the routine development expenditure and also the stimulus measures. This also sends a signal to the local industry that rampant exports cannot be permitted forever when the local industry faces shortage. In addition, it has sent a strong signal that illegal mining has to stop. Many mines are currently under investigation with their mines lying closed. The local mining industry is lobbying hard to get out of the multiple crises. “India’s Iron Ore: Following the Global Meltdown” is the latest report form SNRS. The report discusses the current iron ore business in India, prospects for the future and unfolds the opportunities to provide strategic guidance to investors and all others related to iron ore business in India.