Despite the recent strength seen, there are good reasons to expect the steel market to weaken again towards the end of the year. The current conditions globally could just be a bubble arising out of strong restocking drive at the user end and the popular speculation that prices have potential to rise continuously.
In most parts of the world, the steel industries believe that they are fully back in business. The sharp rise in the prices of HR coils in particular reflects the strength also in the market for other downstream products such as CR coils and coated products. Everything cannot be merely written off as coming from restocking, although the pace at which restocking was resorted to is an issue. In China, HR coils demand is strong, especially from the tube making segment.
There has been a slight improvement in plates as also in long products of most categories. However, the situation in respect of long products has varied from country to country. In India, prices are on the downhill in the recent days, understandably, due to seasonal monsoon fall of construction activities in most part of the country. In China, the demand and production of rebars have improved, while those for wire rods and other bars and rods for engineering applications have fallen. But, the government’s stimulus measures and investment in railway construction have led to a huge jump in demand for rails. Even the demand for sections is on the rise.
But, uncertainty over the market cannot be written off. Although there are signs that the worst is over both in the US and the EU, the price rise there has been more a result of production cuts than a significant increase in demand from the end-using sectors. Today, driven by the current shortage syndrome and the resultant attractive levels of prices, if the steel plants in the world minus China raise production opening up shut mills which obviously would not stop at producing just what was perhaps the shortage quantity, but, collectively and individually, much more than that, there is no way the current price levels can be sustained. The news of steel mills ramping up to full capacity collectively does not augur well for the steel mart.
It may also not be overlooked that prices of HR coils have also been supported by the near absence of Chinese mills in the global market. One is not very sure how long it will go this way. Currently, they are feeding the domestic market, but, at the kind of capacity they have already created or those coming up especially in the coastal areas, they will have no option but to tap the global opportunities with full vigour. They have significant excess capacity in flat products now. With iron ore and coal prices not falling as much as were expected, there is also a general feel good factor that the steel makers are not badly placed. This is a signal that the steel market is not actually so weak and this view supports higher price expectations.
However, much of the demand increases, which actually have arisen from restart of many projects left half way through last year and China’s stimulus expenditures, will soon evaporate as one does not see new investment projects taken out of the drawing board at this point of time. Lack of new investment will hit steel demand. Since this has started happening in a limited way, long products prices have not made any strong recovery.