The ’cold' month of August, as it has been named by market players in the Russian domestic longs market, seems to have turned into a ’freezing' September as domestic longs producers and importers alike have further decreased their prices for September delivery.
The Russian domestic rebar market was very soft in August, when no week passed without negative corrections in the domestic retail market. Since the beginning of last month, rebar prices have decreased by Ruble 300-1,500/mt ($12-58/mt) in the retail market to about Ruble 22,700-25,800/mt ($885-1,008/mt) FOT, including VAT, depending on the delivery region. This appears to be the largest price fall since the beginning of the year.
So why has this happened? Different market players have different opinions on the issue. Some blame the cancellation of financing for a number of construction projects due to the approaching elections to the Russian State Duma. Others cast their stone at the increasing quantities of rebar imports and demand that the government take immediate action. However, all sides are united in the opinion that the softening of the rebar market has occurred due principally to the decline in domestic demand.
Notwithstanding the various claims, has demand lowered so much as to have the above-mentioned effect on market prices? Or were there other reasons for ’cold' August. Since the beginning of the year, rebar production in Russia increased dramatically as the domestic producers upped their capacities to satisfy the growing needs of the construction industry in particular. In addition to the increased domestic production capacities, imports have become very visible in the market during the current year. Import deliveries accelerated especially during the summer due to the world rebar market slowdown during that period.
As a result, the market was oversaturated with rebar. For instance, according to separate studies, the construction industry which is the main consumer of rebar grew by less than 40 percent. Meanwhile, the supply of rebar to the market (including both imported materials and domestic deliveries) has almost doubled, meaning that almost half of all the rebar present in the market has remained unsold in the stocks of the domestic traders. As a result of this situation, rebar prices have started to drop regardless of the stable levels of demand.
Moreover, the Russian domestic retail rebar market is expected to decrease even further in September as the domestic producers and importers have already announced a considerable price decrease for September delivery. As per the announced price lists, MMK decreased its domestic rebar prices for September by 4-6 percent (depending on delivery region), Severstal came out with a 9-10 percent drop in its domestic prices, and Evraz announced a six percent decrease in its September rebar prices.
Meanwhile, imported offers from CIS producers were also lowered for September delivery to the Russian domestic market. Thus, following the announcement of the domestic producers, Ukrainian ArcelorMittal Kriviy Rih and Belarusian BMZ decreased their rebar price offers for Russia by 3-6 percent.
All these factors leave us with the conclusion that the Russian domestic rebar market will most probably continue to slow down in September. However, a renewal of export deliveries of Russian rebar may restore the balance in the Russian domestic market, as traders' stocks lessen.