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Global steel prices may stabilise at the current level
Wednesday, May 23, 2007
Global steel prices may stabilise at the current level instead of going down. The Chinese government has decided to levy a 5 % to 10% export tax on 83 types of finished steel products from June 1. The steel prices in the Chinese market are lower than international prices. This will help in stabilising international prices by reducing flow of steel into the global market from their own mills.
Experts believe the Chinese government has always been upset with so many players in the country chasing a relatively scarce commodity like iron ore. The Chinese government wants these resources to be available first to efficient mills only and that too at lower prices, and this is a step in that direction. China is short of iron ore and is importing iron-ore along with coking coal.
However, experts believe China may not reduce exports as has been the case in the past, and will only end up helping select Chinese mills by preventing actual prices from falling
Also there is a concern in the domestic market that steel product prices will fall and the market will be flooded with products that would previously have been exported. There are also concerns over the effect the policy would have on future export prices.
European and U.S. markets are expected to enter their traditional slack consumption period from the end of June to July. Foreign clients are expecting a drop in Chinese export prices during this period. Both international demand and China's exports will be negatively affected during this period. Despite export restraining policy China's steel product exports are actually set to increase in the second half of the year.
Meanwhile analysts feel decision to curb exports when the global market is set to lose strength is puzzling. Major steel producers may not have to reduce prices even if global steel prices go down. Also China may not reduce exports and will help Chinese mills by preventing prices from falling.
In India, there has been a upward revision in flat steel prices in the last couple of months. There is a strong domestic demand and brisk changes in the rupee-dollar exchange rate. Top 5 domestic steel producers have resorted to a price increase of Rs 1,000 to Rs 2,000/ tonne of flat steel.
Last time when steel manufacturers increased prices, the steel ministry urged to the steel companies to roll back prices to contain inflation. But this time there is no such worry as inflation is below 6%.
Outlook
- Significant Chinese flat steel capacity due to come on stream in the 2H
- Forecast the industry's benchmark, hot rolled coil (HRC) prices to fall by 26% from its Q2 peak in 2007 to end-2008
- Valuations are now at historic highs
- M&A activity, which has driven the sector's performance over recent months, has also reached a point of resistance
Experts believe the Chinese government has always been upset with so many players in the country chasing a relatively scarce commodity like iron ore. The Chinese government wants these resources to be available first to efficient mills only and that too at lower prices, and this is a step in that direction. China is short of iron ore and is importing iron-ore along with coking coal.
However, experts believe China may not reduce exports as has been the case in the past, and will only end up helping select Chinese mills by preventing actual prices from falling
Also there is a concern in the domestic market that steel product prices will fall and the market will be flooded with products that would previously have been exported. There are also concerns over the effect the policy would have on future export prices.
European and U.S. markets are expected to enter their traditional slack consumption period from the end of June to July. Foreign clients are expecting a drop in Chinese export prices during this period. Both international demand and China's exports will be negatively affected during this period. Despite export restraining policy China's steel product exports are actually set to increase in the second half of the year.
Meanwhile analysts feel decision to curb exports when the global market is set to lose strength is puzzling. Major steel producers may not have to reduce prices even if global steel prices go down. Also China may not reduce exports and will help Chinese mills by preventing prices from falling.
In India, there has been a upward revision in flat steel prices in the last couple of months. There is a strong domestic demand and brisk changes in the rupee-dollar exchange rate. Top 5 domestic steel producers have resorted to a price increase of Rs 1,000 to Rs 2,000/ tonne of flat steel.
Last time when steel manufacturers increased prices, the steel ministry urged to the steel companies to roll back prices to contain inflation. But this time there is no such worry as inflation is below 6%.
Outlook
- Significant Chinese flat steel capacity due to come on stream in the 2H
- Forecast the industry's benchmark, hot rolled coil (HRC) prices to fall by 26% from its Q2 peak in 2007 to end-2008
- Valuations are now at historic highs
- M&A activity, which has driven the sector's performance over recent months, has also reached a point of resistance
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Investment in equity shares has its own risks. Sincere efforts have been made to present the right investment perspective.The information contained herein is based on analysis and up on sources that we consider reliable. I, however, do not vouch for the accuracy or the completeness thereof. This material is for personal information and I am not responsible for any loss incurred based upon it.& take no responsibility whatsoever for any financial profits or loss which may arise from the recommendations given in this blog.
