WSD Strategic Insights #LXXII: The Power of the Invisible Hand

Tuesday, 26 April 2016 11:04:49 (GMT+3)   |   Istanbul
       

So far in 2016, there's been a significant rally of hot-rolled band prices on the world market and most home-country markets.  From the low point in December 2015, hot-rolled band is up about $60 to $100.

The price rebound occurred in part because steel buyers were ending their inventory liquidations.  Also, steel buyers sensed that the price had little downside risk because it was so depressed.  In December 2015, WSD's World Cost Curve analysis was showing that the median-cost Chinese mill's ex-works hot-rolled band price was $82 per tonne below the marginal cost while the median-cost non-Chinese mill was $45 per tonne below.

The key factor, however, driving prices up was the "power of the invisible hand" - i.e., price allocates resource.  The prices were so low in December 2015 that many steel companies the world over were in a "financial suicide" condition.  Steel production cutbacks and announcements of plant closures began to accelerate.  Subsequently, steel buyers began to recognize that steel prices had little further to fall. 

This report includes forward-looking statements that are based on current expectations about future events and are subject to uncertainties and factors relating to operations and the business environment, all of which are difficult to predict.  Although we believe that the expectations reflected in our forward-looking statements are reasonable, they can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties, including among other things, changes in prices, shifts in demand, variations in supply, movements in international currency, developments in technology, actions by governments and/or other factors.

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