The ominous signs have appeared on the weekend for long products setting tone for further correction in coming week in MEA, where prices are largely determined by import offers from Black Sea and Turkey.
It is reported that rebar is selling at AED 2800 per tonne to AED 2900 per tonne in UAE. It is noteworthy that the levels have not shown any noticeable change despite all the hullabaloo about market improvement. The reasons remain same “lack of demand” and “credit” in the market and amplifying the fact that all the improvement in last 2months was solely on account of Turkish mills trying to push prices.
The significant factor is that even at the levels of AED 2800 per tonne which is about USD 760 per tonne discounting for USD 30 per tonne inland costs it comes to USD 730 per tonne which still gives them a margin of USD 100 per tonne over cheap possession cargoes at USD 610 per tonne to USD 630 per tonne CFR booked about 6 weeks back thus leaving ample scope for correction.
But in the last few days, billet prices in Turkey are reported to have dived by about USD 100 per tonne. Although sellers started offering USD 580 per tonne FOB basis, buyers stayed away despite being confident of achieving USD 560 per tonne on firm bid basis as compared to USD 650 per tonne to USD 655 per tonne FOB levels on April 10th 2010.
The time of reckoning seems to have approached as the feeble vibes of correction became a fully blown pandemic with scrap and long product prices. Scrap prices crashed by an unprecedented USD 50 per tonne to USD 80 per tonne in a day, sending chills down the spine of operators. The haunting proposition of July 2008 type crash left the market sentiments in tatters.
Although the downpour was on the anvil since the flare up evidenced during the last 2 months was never propped by proportionate demand growth. The edifice was brittle and bound to crumble under its own weight since it was supported by feeble crutches of cost push (scrap and iron ore prices) and stock replenishment fanned by speculation.
Contrary to the upheavals in the scrap and long product market flat continues to go strong owing to the following reasons.
1. Mills are focusing more on semis as their prices seem to soaring. Slab prices are almost at par with HRC at USD 675 per tonne FOB Black Sea for June shipment.
2. Since most of mills were working under capacity for bulk of 2009 and early 2010 supplemented with China being out of international market owing bolstered domestic consumption the over supply situation has vanished
3. Summer is the prime time for high production and high consumption in Europe and China.
4. Since most of mills in Europe were out of action in post recessionary period of 2008 and whole of 2009 the inventory levels are abysmally low thereby compelling stockiest traders to replenish stock.
Small positive fluctuation in economic growth evidenced after the winter has led to a multiplier growth in demand as the inventory levels are low.