Flat rolled prices rising, uncertainty observed in international markets

In flat rolled markets, as mentioned in our analysis dated May 12, 2006, prices keep moving up due to the tight supply of CIS origin materials. Despite this fact, when certain CIS mills were heard to book material at lower numbers than those announced, buyers were seen to have re-directed their focus on imported material. Following the announcement of import material prices, it was thought that prices of Erdemir material was well below the market level; therefore, Erdemir was expected to hike its prices by $30-50/mt. In this respect, following the price announcements by Russian and Ukrainian mills, Erdemir announced price increase on May 25, 2006, and price reached their highest level in the last couple of months. The uncertainty and instability in the Turkish market still continue. The price announcement of Erdemir was not late to display its affects in the market and an average price increase of $10-15/mt was seen in hot rolled and cold rolled materials (both import and Erdemir material in the local market) in the local Turkish market. The uncertainty regarding the 11 percent tax rebate for exports in China still continues. According to certain market reports, the 11 percent tax rebate might be reduced to either 5 or 8 percent, depending on the situation. Chinese mills prefer to insert additional clauses to their offers as a precaution against extra costs to occur related to a possible reduction in tax rebate. Since there was no official announcement regarding the subject in May, common market expectation is that the decision regarding the issue might be clarified in June. The fact that the ongoing negotiations between iron ore producers and Chinese mills have not been concluded yet seems to be playing a role in this decision. The 19 percent price increase deal settled with certain mills in other countries has not been accepted by Chinese mills so far, and CVRD says it will stop shipments to China unless an agreement is reached on this issue till the end of May. CISA (China Iron and Steel Association) for the moment prefers to wait and see the developments prior to making any amendments in tax rebate rate applications. On the other hand, due to the approaching monsoon season, prices have started to soften in India. In galvanized materials, the irregular fluctuation in zinc prices in the previous weeks is an important factor that hinders formation of stable prices.