The Hindu Business Line : Steel prices may continue to be under pressure

As the margins for billet producers are at near record levels, there is no expectation of a production cutback. This is likely to exert further pressure on steel prices during the rest of the current year and in 2009.

G. Chandrashekhar

Mumbai, Aug 8 For a variety of reasons, the market outlook for steel does not appear positive.

Prices are under pressure and would continue to remain so. Cracks are beginning to emerge in the steel billet and long product markets with the product performance confirming a distinction between industrialised countries and emerging economies. No doubt, demand in certain markets – notably the West Asia and the BRICS economies – remains firm; but in major industrialised countries, the OECD area, demand growth is easing following perceptible slowdown in economic activity.

Price Differential

High and rising energy costs have added to the uncertainty. Also, the impetus from higher raw material prices is beginning to fade.

As the margins for billet producers are at near record levels, there is no expectation of a production cutback.

This is likely to exert further pressure on steel prices during the rest of the current year and in 2009, according to a review by Natixis Commodity Markets which pointed out that the steel market needs to be viewed as a series of regional markets.

There is now a large price differential in long products between regions that cannot simply be explained by high freight rates. This is unsustainable and will be traded away as material flows from high-priced to low-priced areas, the review pointed out.

The key issue is when and whether low-priced regions will be forced to pay more, or high-priced regions will end up paying less.

According to Natixis, the outcome will be more of the latter than the former. The argument is reinforced citing developments in the key Turkish market where prices are easing as construction activity begins to slow.

The sector has responded to the twin concerns of higher steel prices and the credit crunch by reducing their steel purchases which has seen the price of rebar and wire-rod retreat from their recent highs of close to $1,400 a tonne.

Gulf Grows

A region-wise review reveals that while the US market plays catch-up (the market leader raised wire-rod prices and others may follow), prices are dropping in southern Europe, but rising in Eastern Europe.

The market has peaked in northern Europe. The gulf region is the strongest growing market (for steel billets and long products) on the back of oil-related construction boom, Natixis observed adding China has made inroads in supplying low priced re-bars to this region.