The markets of steel products ate Black Sea moved downward further last week. In general mood among steel mills was quite pessimistic with their order books remaining extremely thin.
Billet prices at Black Sea have been regressively depleting since the bursting of the bubble around mid April. After peaking at a level of USD 630 per tonne the great debacle started when the scrap prices bulked. Once the slide started it seemed frictionless touching a low of nearly USD 470 per tonne till last week. A purging of USD 160 per tonne can be aptly termed as “carnage”.
The triggering point was a tactical vanishing act by Turkish buyers in order to reign the bullish market .But the fragile nature of a post recessionary market still tottering on saline could not bear the impact. It acquired the nature of a pandemic which got further aggravated with the European crisis.
In fact the devastation was so brazen that long product mills in Europe, CIS and China have commenced pruning production in a bid to survive. The capacity utilization which had touched an impressive 80% during the first quarter seemed destined for 60% impeding the wagon wheel.
Although some market players from buyer’s side were dropping USD 450 per tonne FOB Black Sea for billets, destined for Middle East, it remained a hypothetical level for the market and was probably for some urgent quantities. Some deals were also reported at USD 460 levels. As such billet offers were maintained by producers at USD 470 per tonne to USD 510 per tonne. Given the cost of production of billets at current levels working out to USD 500 per tonne undoubtedly the mills are selling below cost and this massacre is likely to decimate many unless the upturn takes place supported by demand.
Despite weakness in billets while steel mills latched on to previous week levels for rebars, offers for wire rods saw significant drop of about USD 30 per tonne closing the gap between rebar and wire rods FOB levels.
For finished flats prices also went down, but we got impression that the situation with orders is better than for longs. Some deals of Ukrainian HRC to Turkey were reported at USD 580 CFR.
The market was also abuzz with changes in the ownership structure of Ilyich and Zaporizhstal adding further uncertainties to the situation.
Generally producers are fighting price crises cutting output. In May Ukrainian mills generally decreased steel output by 5% MoM. But the figure is formed by very different dynamics. AMKR lost 5%, Ilyich 17%, Alchevsk 23%, DMKD 21% while Azovstal and Zaporizhstal added 7% and 6% respectively. This reflects that the downturn in global steel market has really started to take toll and order books are very thin thus immediate chances of revival are negligible.