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USA: Global:
Tue, Jan 28, 2020, 9:24:41 ---- The fact: 42.844.000 visitors done.

SBB: Spot markets slip, but prices should firm in Q1
Steel Business Briefing
Port Pipe and Tube Inc
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Company: Steel Business Briefing, United Kingdom
Attn: Andrew Goodwin

Though finished product sales prices are expected to rise in Q1 Steel Business Briefing believes that firm raw material prices, together with some growth in exports from China will keep mills margins under pressure.

During October, spot traded prices for the bulk of carbon steel products, with the exception of plate, slipped in most markets. For North America and Europe, this was the first change of sentiment since early 2004. Plate has continued to firm.

So far, the reported price decreases are comparatively small and reflect a lack of buyer commitment and increased availability. This was especially the case in North America, where several mill maintenance outages were completed and more tonnage became available.

As reports of lower transaction prices in USA reached other markets, buyers immediately became more cautious. Separately, but at around the same time, some additional tonnages particularly of semis and long products - began to USA Japan EU China appear from China. In addition, supplies of all products from Ukraine and longs from Russia are now returning to previous levels.

However, as most buyers are reasonably well covered for the remainder of the year, they can afford to hold off further purchases. Indeed, in the current battle of wills between producers and buyers, it would appear to be producers, which are now in the weaker position.

For the remainder of the year, prices are expected to remain weak as mills seek buyers for their remaining unsold capacity. buying opportunity.

Looking forward into 2005, it is likely that though finished product sales prices will rebound upwards to an unknown extent - due to raw material costs, producer and distributor margins are likely to be squeezed. Higher energy and fuel costs, as well as ocean freight will increase costs. For those producers, which source raw materials on an annual contract basis, not only are the prices set to rise approximately 20%, but it is only in 2005 that the increase will be felt. Last year, annual contract buyers had a spectacular advantage over the mills that purchased their coke, scrap and/or ore supplies on the spot market.

Global consolidation among the producers is also likely to have a positive impact on prices and capacity discipline. If the lessons of the last year have been learned, then it is likely that supply and demand will be closely matched. Once the annual sales contract negotiations are concluded, the major mills in USA and Europe are expected to have a significant proportion of their 2005 output committed at levels reasonably comparable to current spot prices.

* * * *

Worldwide, current estimates for consumption show continued growth in 2005, albeit at slower rates than recently. IISI forecasts 4-5% growth, adding 40m tonnes to take next years total to just under 1bn tonnes; others believe it may be less. Half of the IISI increase will come in China, to 280-290m tonnes, up 7-10% from an estimated 263m tonnes this year. In the rest of the world, the IISI says consumption will also increase by 20m tonnes from 687m tonnes to 707m tonnes, a rise of 3%.

Although Chinas consumption growth is expected to be less than the forecast increase in crude steel output, the actual difference is likely to be small. (Chinas crude production is expected to be 260-265m tonnes this year, and rise to 300-320m tonnes in 2005), Even the projections of capacity increases in the rest of the world, (40-45m t/y in some forecasts) are likely to be over-stated.

Growth will be less than the capacity figures suggest, in part as 2004s high capacity utilisation rates will not be maintained. Raw material availability is likely to be a major constraint with contract raw material prices set to rise by approximately 20% in 2005, more attention will be paid to freight rates and shipping. Also suppliers will arrange maintenance downtime to match the anticipated softer demand.

At a regional level, the macro-economic cooling measures introduced earlier this year by Chinas government are expected to have an asymmetrical effect, impacting quite substantially on construction demand (52% of Chinas consumption), but much less on crude steel production. Together with new capacity coming on stream in 2005, these developments are likely to result in higher exports, particularly for light long products. And as in September,
a significant proportion of the exports will consist of semis.

The attempts by Chinese domestic producers to raise long product prices in mid-October quickly failed, due to lacklustre demand. However domestic flat prices have continued to rise, and at the new price levels, the gap between import and local prices is much smaller than in the recent past. Looking ahead we continue to foresee further weakness in Chinas long products sector, but less downward pressure on flat products.

* * * *

In East Asia, prices have generally stayed flat during October, at levels well below those in most other major markets. While this has kept down imports from outside the region, the increased volumes of Chinese long products, semis and some flat products have damped prices. In due course, these shipments may also have a domino effect, as displaced export tonnage is offered into markets progressively further afield. The SBB flat products Asian
price index went down 2 points from October to November.

In the Middle East, October has been a quiet month with Ramadan beginning and most buyers already well-covered with purchases due for arrival in early 2005. Though recent offers of coils from Ukraine were made at lower levels, this has apparently made buyers fear that prices could fall even further. Demand is likely to remain strong due to expected higher oil revenues.

In the USA, price levels are still higher than elsewhere; the reports of softer demand really only refer to current spot activity, and do not reflect the transactions recently committed. Apparent consumption figures
(including the last 3 months high figures for imported tonnage) for Q4 2004 are likely to be just as strong, seasonally adjusted, as the rest of 2004.

Flats are generally stronger than longs, where domestic mills seem to be fighting hard for market share and willing to be more flexible, either on price or specifications.

Debars particularly are under pressure, probably more than the usual seasonal weakness, exacerbated by the extra mill capacity currently available. The SBB North America flat products price index has gone down 9 points from October to November.

Going into 2005, buyers may be more hesitant. If the current signs that imports in the first few months may be reduced are correct, then Q1 market prices could swiftly return to Q3 levels.

In Europe, the flat products market is fundamentally sound, but with little activity over the last month as buyers appeared undecided whether to commit forward or wait for improved offers.

The mills should be able to implement their price rises (seemingly of up to Euro 30/tonne on 1 January), and to continue to propose further increases into Q2 and maybe Q3. If the producers keep capacity and customer tonnage allocations tight, then it is unlikely that a limited volume of cheaper imports will weaken market prices. The SBB flat products price index Europe went up 3 points between October to November, but is currently falling back.

There is also increased availability of billet and light long products from Russia compared to previous months. As Ukraine too is now seeking to place export tonnages in its traditional markets, it is not surprising that spot prices are under pressure. Again, this is likely to be a good buying opportunity before the market strengthens elsewhere. From early 2005, Russian mills will also be able to utilise new annual quotas for flat product exports into the USA and Europe.

For the next 9-12 months it is the North American market that is likely to be the key to buyer sentiment and the trigger for the return to upward moves in the spot market price. Underlying demand is still forecast to be firm by most commentators and having already reacted to the seasonal weakness of the last quarter, the major mills are in a good position to respond positively to any upturn in the early months of 2005.

It is likely that some tonnage that is not imported into USA will be redirected to West Europe, though presently at lower effective prices than it would have enjoyed in USA. However, current import penetration in Europe is comparatively low, and there is some scope for it to be absorbed without having any significant impact on price levels.

For spot prices on flats, the key determinant is likely to be the CIS/FSU domestic economies - if they continue with their strong demand growth and restrict the availability of material for export, then prices should also remain firm. On longs, especially billets in East Asia, then Chinese mills are also important suppliers but there will not be such a profound impact on world prices outside their region.

Finally, plate continues to be the best performing product area. With shipping, construction, pipes and yellow goods industries all reporting a strong outlook, there is little reason to foresee any weakness here, though it is likely that supply will more closely match demand during 2005 than in 2004.

Steel Business Briefing Ltd 2004. All rights reserved.

All information in this report has been verified to the best of the publishers ability. However, Steel Business Briefing does not accept responsibility for any loss arising from

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