Prices for most steel products have been following a fluctuating trend after the sharp drop in the first quarter of 2010, according to a statement released by the South East Asia Iron and Steel Institute (SEASI).
In Asia, steel prices are reported to be steady as well, while prices of some steel products in China have begun rising. It is expected that China's steel producers are looking to push their prices higher in the coming months. Moreover, the recent rise in iron ore prices as well as the firming up of scrap prices could add to the pressure on finished steel product pricing in the near future, SEASI commented.
In Malaysia, some of the country's steel manufacturers are cutting production by up to 50 percent of their capacity while others are offering discounts to push sales. However, it is expected that after the Ramadan fasting month in August, demand will return to the market and production may increase to match demand level, SEASI said. Indonesia's steel producers are also struggling with the upward trend of scrap and semi-finished steel product pricing. Nevertheless, demand has remained weak and there has been no reaction from the market when producers tried to increase prices.
According to the SEASI's statement, in general current steel demand seems to be lackluster, but is expected to improve at the end of the third quarter, after the summer slowdown and the rainy season in Asia. In the meantime, scrap and semi-finished product prices have begun to move upward.
Chinese domestic demand has apparently increased after falling significantly in the second quarter. It is expected that seasonal effects should boost demand later in the fourth quarter of 2010. Demand in the rest of the Asian region is expected to be firm. The key question is whether steel producers will reduce production to hold steel prices. According to the World Steel Association, crude steel production declined in the months of June and July. Therefore, many reports remarked that steel price levels should increase again in the fourth quarter.
What is going to be the situation for steel pricing in 2011?
Apparently, steel demand in many regions will slow down. Chinese steel demand in 2010 is expected to rise by 10 percent, but will increase by only five percent in 2011. This will cause a moderate decline of exports from China. Non-Chinese steel demand (in the advanced countries) is expected to surge by 12 percent in 2010 and could be up by only three percent in 2011. In non-Chinese developing countries, steel demand may rise 15 percent in 2010 and eight percent in 2011.
Steel buyers are unlikely to keep so much inventory in 2011 since prices are volatile, SEASI stated, unless they perceive a risk of sizable price increases, which does not seem likely. Buyers are likely to maintain a wait-and-see policy until the last minute before they make a decision to purchase.
World Steel Dynamics forecasts steel prices for 2011 in four different scenarios, starting from the best (first) case when global economic and steel industry profits boom: to the second case when good global economic expansion occurs; steel demand rises by six percent; the mills' profits rise sharply. The third case which has more possibility is the same economic assumption as in the second case and steel demand rises by six percent but there is a persistent oversupply problem. The worst scenario (fourth case) assumes that global economy continues to be mired in recession and stagnation with many steel mills losing money. As a result, World Steel Dynamic expects steel prices to range between $475/mt FOB and $850-900/mt FOB.