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by Stuart Burns

All the signs suggest the steel market, particularly the steel market outside of North America, has further to fall. In Asia, the FT reports the benchmark 62% Fe iron ore contract fell this week in Singapore to $133.25 a ton, the lowest since early November 2011, while thermal coal prices in the Australian port of Newcastle, the benchmark for Asia, fell to $95.95 a ton, the lowest since October 2010.

What does this mean for future steel prices? Prices of both commodities are down 12 percent since the beginning of April. Meanwhile, raw and finished steel production has been slowing in China, with a Reuters article quoting Patrick Cleary, principal steel analyst at Wood Mackenzie, who said steel demand is sluggish and rising production is going into mill stocks, not feeding end user demand.

“The market is oversupplied and prices are still falling. At some stage soon we should start to see some reaction in China,” Cleary said.

Although the economy appears to be continuing to expand at a modest (for China) 8.1 percent in the first quarter and is expected to hit 7.9 percent in the second quarter, other economic indicators including electricity consumption, rail cargo volumes and disbursement of bank loans point to a sharper slowdown in the second quarter, according to the FT.

Elsewhere the story is similar. EU steel production was at 14.9 million tons in April, down some 5.2 percent on the same month last year as the political and economic situation continued to deteriorate in Europe. Nor were the big boys exempt: Germany was down 5.5 percent and Italy down 3.2 percent. Production in a previously robust CIS region was down 4.7 percent as exports to its main markets fell while the fizz seems to have gone out of the Brazilian steel market as first ArcelorMittal (MT) dropped plans to build a $1.2 billion wire rod mill and specialty steel production line, then interested bidders seemed to be thin on the ground for ThyssenKrupp’s (OTCPK:TYEKF) 73% stake in the $5 billion steel mill CSA, which came online only two years ago.

Only in Japan, where steel production year-on-year is being measured against a tsunami hit 2011, and in the U.S., where production was up 4.7 percent at 9 million tons in April compared to last year, are there positive signs of rising demand.

Disclosure: No positions

Source: Falling Iron Ore, Coal Prices: The Start Of A Steel Market Collapse?