Steel Advance / Decliner Index Ex-China Hits 100%, Highest Since April

Includes: AKS, MT, NUE, RS, STLD, WOR, X, ZEUS
by: Michelle Galanter Applebaum

The Advance/Decliner Index is our effort to quantify the anecdotal price information we find in our everyday reading about global steel price trends. In this report we are also looking at relative prices in the U.S. versus abroad, in our attempt to gauge international price pressure/opportunities heading our way.

Summary and Outlook

While the holiday week brought the number of price changes recorded down from 81 to 39, the strength in our Index at 95% remains profound. With further raw material price strengthening, we believe global steel prices may extend the recent upward run into the second quarter. This includes metallurgical coal, which is likely to jump from the rain-driven disruptions of production and shipping in Australia.

We continue to see the environment of unprecedented volatility driven off of low global inventories, increasingly volatile raw material pricing, combined with the impact of China’s traditionally more volatile market drifting into the rest of the world. In the U.S. in particular, a 20% jump in sheet prices in a single week caps a total increase of 40% since the recent bottom in October. The steel pricing volatility should be unsurprising: Any pricing trend in the industry has proven to be temporary, so the logic of the mills “making hay while the sun shines” is impeccable. Justifying these price increases as cost-driven in an environment of zero profits should not be a consideration- in our view- unless of course the concept of steel companies subsidizing steel consumers has become part of our brave new world.

Advance/Decliner Index Increases to 95%

Our Advance/Decliner Index moved sideways in the quiet holiday week, rising to 95% from 94% the week before. The increase was a result of our Ex-China Index increasing from 93% to 100% for the first time since April, as steel prices around the world continue to rise due to higher raw material prices and expectations of further increases. China recorded the lone declines during the week, most likely the result of Beijing’s interest rate hike. This served to reduce the China Index to 82% from 100%. Overall, Chinese steel prices remain strong and we expect that to continue with contract raw material prices rising in 1Q.

China and HRC Record Most Hikes

China led again this week, posting nine increases, followed by Turkey with eight, and East Asia with seven. The U.S. logged three hikes, while the CIS and the Middle East posted two apiece. Belgium, Egypt, India, Italy, Japan and Spain all posted a single increase, while China posted two declines. Hot-rolled coil (HRC) led the strength this week with 12 price hikes, followed by rebar with five, and coated and cold-rolled coil (CRC) with four each. Billet had three increases, while beams and plate had two hikes apiece. Energy pipe, merchant bar, non-energy pipe, slab and wire rod logged one increase each. Billet and plate had a single decrease apiece.

Relative Domestic HRC and Rebar Prices Up; Beams and Plate End December Mixed

Domestic HRC prices rose a robust 26.5% in December following a bevy of price hikes announced throughout the month, significantly higher than increases of 4.5%, 2.1% and 0.2% seen in China, Europe and Japan. Domestic plate prices gained 4.3% in December, better than Europe’s 1.2% decline, but below China’s 6.3% increase. Domestic beam prices posted a 2.6% gain in December, less than the 4.7% and 2.7% increases recorded in China and Europe, but more than the 0.1% uptick seen in Japan. Domestic rebar prices rose 6.3% in December, ahead of the 6.1%, 5.3% and 4.2% increases recorded in Europe, China and Japan.

Disclosure: I am long CLF, RS, NUE.

Additional disclosure: SMI Publishes stock analysis ONLY to our paying clients