Advance/Decliner Index Drops With Global Weakness – Except U.S.
Our Advance/Decliner Index fell to 61.4% last week, the lowest level since November, reflecting, in our view, a natural oversaturation of price increases that have seen most steel product prices up some 50% off the trough of just a few months ago. The pricing weakness is understated in our view, because many of the announced increases during the week were from major global mills that announce price changes on a somewhat lagged basis as compared to their local spot market. Weakness is broad-based and in our view driven out of China, with our China index hitting 46%, the lowest level since October, while the rest of the world continues to struggle with a ratio of price increases to decreases of 65%.
East Asia Strongest; HRC Regains Product Lead
Non-Chinese Asia reported 14 increases trailed by China with six; Japan had four increases while Saudi Arabia had three. Europe and Mexico each recorded two increases while Brazil, the CIS, Germany and Sweden each logged a single increase.
China led the decreases with seven this week, followed by East Asia with six, and Europe with four decreases. India and the UAE had two decreases while Turkey had a single cut. The US was notably absent from any price changes in the week.
Hot-rolled coil [HRC] showed the most strength with ten price increases, followed by rebar with five, cold-rolled sheet [CRC] with four followed by beams, coated sheet and plate with three increases each, and wire rod with two increases. Bar, energy pipe, merchant bar, slab and tinplate each posted a single price increase.
Rebar again led the pricing weakness with six cuts globally, followed by billet with four decreases, beams, HRC, merchant bar and wire rod all logged two cuts apiece while coated, CRC, energy pipe and plate each posted a single decline.
Domestic Prices Still Can’t Catch Up to Global Levels
Domestic steel prices continue to struggle to keep up with escalating offshore prices, so on a relative basis, domestic prices again fell in the month as compared to most global peers. Domestic HRC rose 6.2% in April, marginally ahead of Japan’s 4.6% increase, but trailed China’s 10.1% increase and was meaningfully below Europe’s 18.7% jump for the month.
Domestic plate prices were up 4.9% in April, but lagged versus both China and Europe, up 15.4% and 19.5%, respectively. US beam prices jumped 7.0% this month, beating Japan’s 3.9% increase, but fell nominally short of China’s 8.5% increase and Europe’s 18.8% gain. Domestic rebar prices rose 12.7%, outpacing Japan’s 5.5% increase and China’s 11.3% gains, but again trailing Europe’s 18.6% increase.
Outlook – Global Prices Tipping on Chinese Speculative Worries
Steel prices are clearly past the tipping point globally, although we haven’t yet seen the trend hit the US - yet. Global pricing is being led by China,where prices are weakening on what is no more than the elimination of speculative fever in commodities on the worries of a slower-growing economy. We will see steel prices starting to rise again within the next few months in response to the reality of far higher costs for raw materials, particularly in China. The rationale for higher pricing is profound; because China is now 60% of the global steel market, and is the region most hurt by global raw material price increases, China has created a “cost umbrella” for the rest of the world. China is able to pass through these cost increases into their highly protected market in the form of higher prices; and Chinese prices, the most-quoted in the world, have become “global reference”.
Disclosure: No positions