Daily Steel News - 30 Jun 09

Steel prices should rebound by year end –Macquarie
Macquarie Securities Group in London believes steel prices should rebound by the end of 2009 from their massive decline during the recession, as Chinese demand picks up, Chinese exports slow and users in the United States and Europe resume buying. Steel's longer-term outlook remains strong, said Jim Lennon, executive director at Macquarie, citing a slow rebuild of shuttered production capacity outside China relative to demand. Speaking this week at American Metal Market's Steel Survival Strategies conference, Lennon forecast 2009 world steel demand at 1.214 million tonnes compared with 1.352 million tonnes consumed in 2008. Excluding China, demand should fall 19.9 percent this year to 702 million tonnes. Biggest user China, should consume far more steel this year than any other region at 511 million tonnes, a 7.6 percent jump above its 475 million tonne demand last year. China's demand will be 25 to 30 million tonnes higher than actual consumption, because buyers have undergone a heavy inventory restocking after a deep destocking period last year. 'That explains why we can come up with a production number of 540 million tonnes compared with 500 million tonnes last year, despite the fact that it will no longer be exporting 50 million tonnes. But the 540 million has upside rather than downside risk,' the analyst said. Construction should dominate Chinese demand, with more than half of the total going to that sector. While export-oriented sectors should fall, China's domestic industries, like autos, shipbuilding, railways, oil and gas will all grow, he said. So far this year, motor vehicle production was up 20 percent, shipbuilding rose 40 percent, and construction activity grew by 10 percent compared with last year. By contrast, he said, he sees North American steel demand at 88 million tonnes this year, a steep 28.7 percent decline below the 123 million tonnes used in 2008. Unlike the United States, where little government stimulus money has made it to infrastructure rebuilding, the Chinese government has devoted massive funds to infrastructure. China's long steel product demand rose most sharply. Through May, it went up 23 percent year-on-year, whereas flat product demand was up only 2 to 3 percent, he said. Output also rose for long products, but fell for flat steel products. 'This suggests demand growth was very much been driven by construction, rather than flat product segments,' he said. In anticipation of future growth, Lennon said, 'China has realized this is a once-in-a-lifetime opportunity to purchase cheap commodities and raw materials to modernize its economy.' Imports of raw materials like oil, coal, and iron ore have soared. And it has been restructuring its domestic industries by closing many small, high-cost and dangerous coal and iron ore mines and replacing them with new ones. 'The risk is that when the rest of the world starts to pick up we get a renewed tightness in iron ore again,' said Lennon. With that in mind, he said, he sees iron ore and coal contract prices increasing next year, with coal going up 5 to 10 percent and iron ore contracts rising by 5 percent. And, though China has exported much less steel over the last 9 months, that has recently started to change. 'The feedback we're getting from China is that export orders are starting to pick up again. That's a function of the fact that, in North America and Europe, a lot of the people who were buying (steel) products from China destocked quite dramatically and are now coming back to buy fresh product.' 'So, we see a sign of pick up in the export oriented industries this year,' Lennon added.

Daily Steel News - 25 Jun 09

Imported billet prices rise on firm scrap in SE Asia
Recent bookings of imported billet in southeast Asia have risen to $430-435/tonne cfr, up by $5-10/t from bookings made in the second week of June. Importers in Vietnam paid around $435/t cfr for Russian-origin material, whereas buyers in the Philippines and Thailand recently booked at around $430/t cfr. Bookings were for August/September shipments, trading sources tell Steel Business Briefing. "Demand is there. But buyers are cautious because prices are moving up," a regional trader in Singapore notes. New offer prices have since risen to around $440-460/t cfr for Russian and Ukrainian material, traders say. Offers from Malaysia are heard at $450/t fob, or around $470/t cfr Thailand. "It is the rainy season. demand is weaker. Those who needed material have already bought," an importer in Vietnam says. He is not buying now but says that offer prices rose last weekend. Bullish traders believe that prices are on the uptrend. "They are ready to pay higher billet prices because scrap prices are firming," a trader in Vietnam tells SBB. Traders report hearing unconfirmed bookings of billet at $450/t cfr. This was for southeast Asian origin billet booked to Vietnam (where Asean-origin imports are levied preferential 5% import duty instead of 8% for imports from elsewhere) and a booking to Thailand. "We heard that some buyers raised their bidding price to $450/t cfr because they were not able to secure material at $440-445/t cfr," says a Thai trader. Domestic scrap shortage, due to local scrap yards withholding cargoes in a rising market, is behind recent buying interest for billet, he tells SBB.

No steel demand recovery before Q4: Fitch
Ratings agency Fitch does not expect steel demand to recover before the fourth quarter of 2009, it says in a report sent to Steel Business Briefing. Stocks of some products are depleted in certain regions and new orders are improving, but a "rebound in real demand will require a strengthening in consumer and investment spending, which may just be bottoming out," according to the report. Construction demand is likely to pick up in the near to medium term because of government infrastructure spending, but 2009 automotive requirements will be down 15% in the US and 12-15% in western Europe on already soft 2008 levels. The agency does not expect a substantial recovery in automotive demand until well into 2010. Steel mills' earnings and cash-flows will suffer until real demand does increase, and problems with credit insurance will further constrain trading, it adds. Ramped-up Chinese production may further pressure margins in regions afflicted by weak demand. "The reinstatement of export tax rebates on some steel products may result in excess production pressuring weak markets elsewhere," Fitch says. Mill capacity utilisation rates will improve to 60-70% when destocking has been completed, Fitch believes, but will remain below 75% until demand recovers. European mills were producing at 49% of capacity last month, while output was at 43% in the US. Global steel production declined by 22% in January-May 2009, compared to the same period in 2008.

Daily Steel News - 23 Jun 09

Shagang puts up rebar and wire rod prices
Eastern China's Shagang announced on 21 June that it will increase rebar and wire rod prices by RMB 130/tone ($19/t) and RMB 180/t respectively for deliveries towards the end of June. The adjustments have taken new prices for 16-25mm HRB335 rebar and 6.5mm carbon wire rod to RMB 3,750/t ($549/t) and RMB 3,880/t. The large increase from Shagang and other producers at almost the same time have given impetus to further rises in the Hangzhou market. On 22 June, prices for Shagang-sourced 16-25mm HRB335 picked up by RMB 80/t to RMB 3,800-3,820/t, with 17% VAT. A Hangzhou trader says he does not understand why mills have chosen to substantially raise their prices at this moment because he sees demand falling as construction slows in the peak of summer. "Many traders have shut up for the afternoon until they can see what's really going on in the market," he says. Shanghai traders are offering 18-25mm HRB335 at about RMB 3,680-3,720/t, up by RMB 120-150/t in a day. Meanwhile, 16-22mm HRB335 rebar prices have soared by RMB 100-110/t to RMB 3,730-3,750/t. A Shanghai trader is also circumspect about rising prices. "The current prices are relatively high, which increases the risk of placing new orders," he tells Steel Business Briefing. SBB notes that rebar futures prices on the Shanghai Futures Exchange are in line with physical market trends, with September contract prices closing at RMB 3,919/t on Monday, up by RMB 12/t from the previous trading day last Friday.

Iron ore benchmark clock ticking for China
China has one week in which to decide whether to accept similar iron ore benchmark terms to those agreed between Rio Tinto and Japanese/Korean mills before existing long-term contracts potentially become null and void. Rio chief executive for iron ore, Sam Walsh, pointed out last month that the 30 June deadline was the trigger for the two sides eventually settling 2008-09 contracts. Steel Business Briefing understands that Rio is unlikely to change its position of offering the same terms . a 33% reduction in the price of contract fines and a 44.5% drop for lump . and that the decision rests firmly with Baosteel/China Iron & Steel Association (CISA). CISA has so far resisted accepting similar pricing and continues to call for a reduction of at least 40%. D.J. Carmichael analyst James Wilson said Rio will not change its position as the company won't risk upsetting its Japanese and Korean clients. "Rio wouldn't agree to lower prices as Nippon Steel and Posco would undoubtedly say they wanted their prices backdated and then the whole thing starts again," he tells SBB. Metalytics analyst Dallas Horadam said it was unsurprising that CISA and Chinese mills would "resist and reject for a suitable period." He adds: "We have never thought it likely that the Chinese mills would get a different settlement." Citigroup analyst Alan Heap told SBB that contract terms are settled on a company-to-company rather than country-to-country basis, such as the deal agreed between ArcelorMittal and Vale last week. "It's hard to countenance that smaller Chinese producers will achieve a larger price decline," he said.