According to a statement released by the South East Asia Iron and Steel Institute (SEASI) citing a CRU* presentation at the 2010 SEAISI Conference and Exhibition, the recovery of the steel sector has been dampened by the robust increase in raw material prices. Many experts forecast that steel prices will be volatile but will maintain an upward trend throughout 2010.
According to the presentatition, despite the continued increase in steel prices, many steel mills have suffered as raw material prices are rising more rapidly than steel prices. The CRU steel price index pointed out that in many regions of the world, except North America and Southeast Asia, prices are rising at higher levels when compared to cost changes, suggesting that margins are being squeezed.
In the case of China, although hot rolled strip prices are increasing, the margin has been squeezed and it appears to have fallen significantly from above 90 percent in 2004 to between 10-20 percent in 2009. For ASEAN re-rollers, the margins for conversion from billet to rebar and slab to HRC were found to have dropped substantially to about $20/mt in April 2010. However, CRU observed that the margin for re-rolling HRC into CRC in the region was $115/mt in April 2010, increasing from an average of $97/mt in the last four years. One possible reason could be the shortages in the region.
According to the CRU cost model, average margins at 11 percent over costs for HRC production in integrated mill and 42 percent for re-rollers in ASEAN are half the value when compared to China. The highest value add is created in the CRC production stage with 15 percent for integrated mills and 30 percent for re-rollers. However, there is no value add at the coating stage. This raises the question of whether ASEAN should invest more in HRC and CRC production lines.
On the other hand, CIS re-rollers in the rebar and HRC stage are suffering from negative value add of 29 percent and 52 percent respectively. "Should CIS then just focus on producing billet and slab, rather than converting them to rebar and HRC?" CRU asked.
* CRU is the leading authority for the world of metals and mining, power and cables, fertilizers and chemicals.