Steel Market Forecast Briefing - June 2008

Sentiment changes

It is difficult to pin down, or indeed discover what triggered it, but it is clear to us that “sentiment” has changed in the global flat steel market in the last week or so – for the worse. Steel equities are down, there has been some slippage in prices within China, and traders are finding it more difficult to place cargoes. Is this a sign of the start of a major plunge, or simply a plateau in pricing/trading activity over the always-slow summer period?

We would argue that it is the latter, and September will open up the potential for further price gains. Pricing in emerging markets continues to move higher, and this is despite lower order levels from the Persian Gulf, Iran and SE Asian markets as they enter summer/monsoon and Ramadan. Meanwhile European and US demand always slows in the summer, compounded this year by ongoing poor economic news.

Nevertheless, we believe that most of the regions will come back in September with additional orders, and as we have repeatedly commented, there has been no inventory build-up that would allow buyers to withdraw for an extended period of time. Meanwhile Latin American imports continue to rise, while EU and US demand has not fallen so significantly that buyers can ignore imports either. So with increased demand expected in the final quarter, there would have to be an increase in supply to cause prices to fall.

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