London, 29 November 2010

Despite December price hike announcements of $US30/40 per ton by a number of producers, US transaction figures for flat products continued their downward progress over the last four weeks. Year-end demand weakness became more apparent and buyers continued to draw down their inventories.

However, distributors report to MEPS that business activity, which has been low for some time, has picked up in recent days due to the steelmakers’ proposals. Delivery lead times from the mills are also stretching slightly as customers place orders ahead of the anticipated rise. However, there is no sign of any speculative purchasing. Import penetration has stayed low because offers are not competitive.
Order intake at the Canadian mills is poor. Service centre inventories have risen recently but fewer imports and the threat of a lock-out at US Steel may curtail supply sufficiently to stem any downward price tendency. Buyers have reported to MEPS that transaction values are at, or near, the bottom. Producers report that customers are soliciting deals on larger than normal packages that should cover their needs into next year, when a modest pick up in demand is envisaged.
The Chinese government continues its efforts to curb energy usage, thus pressuring the steelmakers to scale back their operations. Although prices have rallied over the last four weeks, market sentiment appears to be wavering once more. Reflecting this nervousness, leading producers have elected to reduce their official late November/December ex-works figures for flat products. Overall, local demand has softened lately for seasonal reasons. Inventories remain overloaded. MEPS believe that the outlook for export sales is not encouraging.
Japanese demand from construction is dismal. Moreover, auto output is falling. However, domestic inventories of stripmill products, at end October, decreased by 0.9 percent from a month earlier. Exports have been booming, especially to markets within Asia, despite concerns over the appreciation of the yen against the US dollar. Meanwhile, import volumes are still reducing.
Although consumption in South Korea’s general market is not particularly good, producers have, once again, maintained transaction prices. In contrast, export quantities have hit record highs during the first nine months of this year, even though the won has been strong.
Taiwanese final quarter consumption is less buoyant than was expected. Furthermore, domestic sales have been hit by very competitive imports, particularly from China and South Korea. It is difficult for local mills to retaliate, given the recent appreciation of the Taiwanese currency. Market prices have been reduced in the last couple of weeks.
Polish demand has contracted as the year-end approaches but market players expect some improvement by the middle of period one 2011. Currently, inventories are well controlled and will soon need to be replenished. The mills have been unable to maintain the price advances they achieved in October.
In the Czech Republic and Slovakia, despite efforts by the producers to lift fourth trimester selling values, the price tendency remains negative. Sales volumes ex-mill are extremely low and distributors report that their turnover of steel products is poor. MEPS feel that Government funding for industry and construction is lacking because of the financial crisis. Nevertheless, official statistics point to a small recovery in progress, with the retail sector leading the way. Service centres are keeping stocks to an absolute minimum.

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