Steel Prices Rising in the West as China Plunges

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Includes: AKS, BHP, CLF, CMC, GGB, GNA, MT, NUE, RIO, RS, SCHN, SMSMY, STLD, VALE, WOR, X, ZEUS
by: Michelle Galanter Applebaum
Advance/Decliner Index Remains Flat
Our Advance/Decliner Index remained almost unchanged at 82% this week after falling from 90% the week before. Pricing strength persists with a record number of price increases reported in a single week in the history of our index. But receding strength in China mitigated the surge in prices elsewhere. Our China index plunged from 100% to 43%, the lowest level since October 2009. We believe this is primarily driven by last week’s Chinese central bank decision raising reserve requirements, which sent a shudder throughout markets in China, and steel is typically among the most speculative of markets in the region. Chinese pricing leader Baosteel surprised the market leading February sheet prices flat – we believe this is 150% negotiating tactic – targeting the iron ore talks – and couldn’t possibly be more transparent either.
Domestic Prices Surge; Rebar Posts Strong Week
The US posted 13 price increases this week, followed by Europe and Turkey with four, China and South Korea with three, Japan, Brazil, the UK, Taiwan, and North Africa with two, and one a piece for the CIS, India, Thailand, the UAE, Pakistan, Iran, Singapore, Malaysia and Russia. China had four price decreases, followed by the US and India with two, and Japan and Turkey with one price decline each. There were 15 price increases for flat-rolled products, followed by rebar with nine, while structural had five, merchant bar and pipe had four, and plate, wire rod, and billet had three price increases apiece. Flat-rolled products and rebar each had three price decreases, followed by beam with two, and merchant bar and billet with one each.
Relative Domestic Prices Running Up
January domestic rebar prices are up 12% from December and have posted a sharp increase – off of near-record lows - relative to China and Europe where prices have increased modestly, and versus Japan where prices have fallen 7%. Plate prices have risen 14% in January, and are up significantly relative to China and Europe where prices are flattish. Absolute HRC prices in the US have risen 16% this month, and are up sharply relative to China, Europe, and Japan. While posted beam prices in the US seemingly increased 6% in January, showing an increase relative to other regions, we think the posted prices are wrong so that beam prices in the US are most probably down versus other regions.
Outlook
The Chinese price shocks this week were in reaction to announcements; more steel trades in speculative hands in China than all other regions combined, so shocks are anything-but unusual. The US market surged this week as it continues to lag global prices which are still rising from higher raw material costs and low inventories. We remain bullish on global prices, including China.
Disclosure: N/A