We have seen a couple of reports in recent days providing conflicting signals regarding domestic steel prices. According to an IHS Global Insight report, prices will fall despite mills’ attempts to raise them. On the flip side, Steel Business Briefing has reported, “US prices could pick up near-term then slide into 2011.” According to Josh Spoores of Cleveland-based Majestic Steel, as reported in Steel Business Briefing, due to “a combination of market conditions has him leaning toward a scenario of falling prices through year-end and into early 2011.” We thought it might make sense to take a look at the raw materials markets for steel for price direction. Let’s start with China, home of half the world’s steel production. According to this recent story in Businessweek, imports of iron ore will likely “recover next quarter” due to lower prices and depleted stockpiles will create the conditions for mills buy.According to the IOSDA (Iron Ore & Steel Derivatives Association), both the iron ore swaps and spot markets ended last week lower. The chart below provides an indication of how the quarterly contracts compared to the spot prices:
Though spot prices have declined somewhat, (3.12% for 62% Fe content), overall iron ore prices appear supported.
According to the Businessweek article, benchmark Chinese steel prices have gained 9.5% over the past 5 weeks to August 20. Our own MetalMiner IndX indicates the following price changes for China steel products from July 27 – Aug 31:
HRC: .01% + change
CRC: .01% + change
Billet: .04% + change
Rebar: .03%+ change
Other indicators of rising prices include a rising BDI (Baltic Dry Index) up 59% since middle of July this year. Baosteel, according to this Reuters report said, “it would keep the prices of its major products unchanged in September,” and other Chinese mills including Anshan and Wuhan Iron and Steel said they would increase prices due to anticipated demand.Domestically, we have heard rumblings that demand remains fairly strong amongst key industry buyers, however, general economic data still suggests that demand may come off during the second half of this year. We still believe a double-dip recession may be in the cards by the time third quarter GDP data is released.