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Market Analysis for Flat Products

US domestic flats market loses steam in late January

Flat rolled steel demand in December of last year was surprisingly strong across the board—demand at the mill, service center, trading and end-use levels allowed for US domestic flat rolled mills to push for their announced price increases throughout the final weeks of 2011. January got off to a strong start as well as buyers had been keeping inventories lean with the approach of the end of year, leading to a noticeable bump in activity in the first few weeks of the New Year. Furthermore, an unexpected production outage right before the Christmas holiday at RG Steel’s Sparrows Point mill reduced the downward pricing pressure from overproduction. By mid-January, domestic hot rolled coil (HRC) spot prices were $36.00-$38.00 cwt. ($794-$838/mt or $720-$760/nt) ex-Midwest mill and cold rolled coil (CRC) spot prices ranged from $40.00-$42.00 cwt. ($882-$926/mt or $800-$840/nt) ex-Midwest mill. But spot prices remained below mills’ official asking prices of $38.50 cwt. ($849/mt or $770/nt) and $44.00 cwt. ($970/mt or $880/nt) for HRC and CRC, respectively.

Then RG Steel restarted production in early January almost as quickly as operations halted, and ArcelorMittal announced plans to restart an idled portion of its Ohio flats mill. The mill restarts reignited US buyers’ overproduction fears as weekly US raw steel production inched up during the month. So while US domestic flat-rolled steel remained steady in January and early February, and even strengthened in some areas such as automotive, there was still more than enough supply to cover that demand.

Additionally, many US buyers purchased substantially less expensive import material toward the end of 2011 that was scheduled to arrive in late February and early March. Consequently, buyers once again began to slow buying activity at the end of January amid expectations that flat rolled spot prices had reached their peak. Lead times, which had extended throughout the previous two months, retreated, and by early February domestic HRC spot prices had slipped to $36.00-$37.00 cwt. ($794-$816/mt or $720-$740/nt) ex-Midwest mill and while CRC spot prices remained between $40.00-$42.00 cwt. ex-Midwest mill, most transactions trended toward the lower end of the range, and prices were expected to incrementally decline further throughout the month.

Turkish flat steel market fails to see anticipated demand revival

While Turkish flat steel producers’ domestic offer prices trended upward in early January compared to late December, the same producers’ export flat steel offers did not reflect similar increases. Reduced flat steel demand in global markets in the last quarter of 2011 combined with the economic uncertainty surrounding the Euro zone and very low flat steel prices in general resulted in Turkish mills and international trading companies being unable to find acceptance for their offers. By late January, Turkish mills’ hot rolled coil (HRC) export offer prices were between $620-$640/mt FOB, while their cold rolled coil (CRC) offers were at $720-$740/mt FOB.

In the Turkish domestic flat steel market, price offers—which rose in the final weeks of December—continued to trend upwards in the beginning of January. Turkish integrated steel producer Erdemir increased its domestic flat steel offers by $20/mt early in the first week of the year. However, flat steel buyers in Turkey delayed their purchases in order to better evaluate the market situation and price trends.

As the month progressed, producers’ prices trended sideways and Turkish producers’ domestic hot rolled coil (HRC) offers remained between $650-$670/mt, while their cold rolled coil (CRC) offers were $790-$800/mt, both ex-works. Amid higher prices, buyers still abstained from purchasing large tonnages, and the domestic flat steel spot market stayed quiet with prices trending sideways.

Before the New Year holiday, market activity was expected to increase by mid-January, but the anticipated demand and market activity surge never materialized and producers kept prices stable.

As the month drew to a close, the Turkish domestic flat steel market’s local producers’ HRC offers, which fell to $640-$670/mt ex-works for March rolling as the gradual price hikes that began in mid-December last year, failed to gain acceptance in the local market.

Chinese HRC market starts the year with softening demand

At the start of January, the Chinese hot rolled coil (HRC) market fluctuated slightly downward amid weak transaction activity. The Chinese HRC market softened further in the following weeks as many downstream customers went on holiday early ahead of the Chinese Spring Festival. Still, some traders sold cargos as usual to customers with transaction prices RMB 10/mt lower than offer prices and overall transaction volume was still weak. Most traders that had low inventories and didn’t feel any pressure from a shortage of funds showed little interest in concluding deals.

Similarly, cold rolled coil (CRC) prices in the Chinese domestic market softened in early January, but some domestic traders who wanted to maintain minimum inventory levels were still actively delivering CRC materials. Meanwhile, due to quiet activity in the market and buyers’ wait-and-see stance, some traders exited the market entirely ahead of the Spring Festival holiday.

Looking forward, Lian Pingyi, chief economist of China’s Bank of Communications noted that obtaining credit in China this year is expected to be easier than in 2011. Loans issued in December 2011 exceeded expectations due the relevant government measures, while domestic banks also had more money to lend due to increased deposits.

 


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