Spring has sprung in the steel markets: analysis

Raw material and finished steel prices continued to firm last week, with improving sentiment in the iron ore market feeding confidence into steel markets and vice versa. The trap of low demand preventing prices increasing for a sustained period of time appears to have been shut for now as rhetoric over production cuts finally appears to be realized.

The benchmark Platts IODEX assessment had iron ore ticking up closer to the $50/dry metric ton mark last week although the pace of increase had slowed. Steel mill margins benefitted as the spread between the iron ore price and the domestic Chinese HRC level rose by $5/mt week-on-week, while the Platts China long steel spread suggests rebar producers’ margins were $181/mt as of February 29. This was up markedly from the low point of $147/mt as of December 7.

The strengthening domestic Chinese market has allowed steel producers to focus their attention on selling locally rather than exporting. This decline in supply meant the Platts East Asian CFR HRC assessment rose $10.50/mt week-on-week to $298-303/mt.

Last year much of the world’s pricing for hot rolled coil fell in line with an FOB China price plus freight. This increase in export prices has helped mills in other regions to push prices as was seen in the $12.50/mt increase in the FOB Black Sea market and even a €5/mt rise in the domestic north European Platts assessment.

Europe has been increasingly exposed to imports, with China, Russia, Iran, Brazil, South Korea and more recently India increasing their presence in the trade statistics. The firming of the Chinese offers following the Lunar New Year holiday reinforced the confidence of domestic steelmakers to push for higher levels. Similarly, in the US the trade measures brought in to limit the competition from external sources continued to support mills as the ex-works Indiana cold rolled coil assessment gained $10/short ton.

On the other hand, the outlook looks much weaker in the Brazilian market where the macroeconomic picture is weighing on demand for steel. The construction sector is particularly weak and prices of products such as rebar are falling amid the competition for orders. On the flats side, the financial difficulties at Usiminas saw it withdraw offers to Europe following the carnival period, instantly removing one of the previously most competitive players for cold rolled coil and EZ. This built upon the trade actions in the US which cut off one of the most significant markets for the Brazilian producers.

The international scrap market has bounced even higher than iron ore as a glut of buying in India spooked the Turkish mills into accepting higher prices for cargoes. This sentiment carried on as the return of spring and construction activity boosted domestic demand at a time when exporting is increasingly difficult.

This market analysis report was taken from the March 2 edition of Platts World Steel Review.

Peter Brennan, PLATTS