Flat steel prices are on the rise worldwide. There is strong demand for them and today buyers are chasing suppliers in Asia. This indicates the global prices are ready for a more than expected increase.

If hot rolled (HR) coils prices remained at about $510-540 levels in the middle of December on the world market for exports, this is a fantastic scenario for the industry. One can expect prices to rise by about $80-100 a tonne once buyers are back in the market in mid-January.

The strengthening of steel prices will also support higher raw materials prices. Scrap prices have risen and one expects iron ore prices to gain about 20%. Coking coal prices are set to touch $160 in the contracts and the current spot prices of both are already higher than there futures.

In fact, one was expecting prices to rise from January onward. There are many reasons why it has happened earlier that predicted. Chinese steel demand, which was considered unsustainable at current levels, has proved analysts wrong. The country still has a lot of appetite for steel as its economy especially the industrial sector continues to run strong.

Demand elsewhere in south east and east Asia is also moving up and is likely to gain further momentum in the coming days.

Again, the recovery will be driven by the developing nations and more by those in Asia. The Middle East concerns remain and Europe will take much longer to get back to shape. The US price rebound in the past couple of weeks and those planned for in January are actually not being backed by adequate demand.

But, there are supply constraints at current level of global demand. There are structural mismatches in the market as well. But, optimism about the market is still overshadowed by a few concerns.

The Chinese industrial growth and their larger presence in the world market will swallow up growth potential elsewhere in the world. This means gains in China will be at the cost of some other country somewhere else in the world. Two, the global unemployment level continues to be high despite economies being in better shape. This means consumer goods and housing demand will continue to remain under pressure.

Three, investment confidence is yet to turn around and remains low in most places. Four, the price rise is associated with a weak US dollar. Any possible change in the direction of US dollar will show up in steel prices. Five, long products market has not shown any major strength.

The climate in changing and is becoming increasingly unpredictable in the steel market. Seasonal changes in steel demand and supply and prices on the world market have been beaten by speculative and hedging actions taken by the industry players both on the supply and demand sides.

Therefore, when we should have expected steel prices to weaken further in December and possibly middle of January, world trend is just the different. The pricing conditions are better than expected. What one needs to worry is that if the price rise has been earlier than expected, February may show exactly the opposite trend i.e instead of rising, prices may fall.

In the mean time, the industry has reasons to be happy at the events in the world market.

But, the price rise expectations should not be carried to far as it will raise the bargaining strength of iron ore and coking coal and in the process take away a large chunk of potential gain for the steel makers.

A spurt in prices is likely to lead to speculative spiral also leading to more than proportionate magnification of prices. However, in the absence of all round and sustained growth in demand, the levels reached cannot be sustained for long.

?(These are his personal views)