Tuesday, January 24, 2006

EU steel prices unlikely to move up in 2006 [MEPS]

According to a MEPS report published today, EU steel prices are unlikely to move up during 2006.

Prices for flat and long products in Europe both saw a general decline during the course of 2005. But the fall was far smaller than it could have been, given the huge stock overhang and this is giving rise to hopes for more stability of pricing in 2006.

The MEPS weighted average transaction price for flat products  fell by 20% between January and December 2005. Mills cut their production, and prices dropped by less than they did in previous down-swings of the cycle. For long products, the MEPS average transaction price declined by a smaller margin – more than 9% over the year as a whole. From January’s €447 per tonne, the average fell to €352 per tonne in August – a substantial drop of 21%.

In January 2006, prices for both flat and long products stand at lower levels than they did a year ago, but are nevertheless very much higher than they were in January 2004, before the remarkable upsurge that took place later that year.

The outlook for flat and long product prices in Europe in 2006 is that, on average, they are likely to be lower than in 2005. It is difficult to envisage that Europe will escape the knock-on effects of global over-supply. The continent is very likely to see mounting pressure from import competition as the year progresses.

Flat product prices look most vulnerable to import pressure. The stock imbalance that loomed over the market for much of last year may have largely dissipated, but the market is still not ready to accept higher prices. Those mills that attempted to push through price rises of €20-30 per tonne in January have had no success so far – leaving the MEPS average transaction price this month unchanged from December.

With growing evidence of over-supply globally – especially in Asia – an increase in imports will pose a threat to EU markets. Last year when the mills cut their production, it gradually became clear they were not simply leaving a gap for imports to fill. This year, things might be different. Any void might well be plugged by the larger volumes of flat products now available internationally. The European mills might not reap the benefits of production cuts in the form of higher prices.

This is not to say that prices will fall through the floor. But it is difficult to see where any strong upward move will come from. There are signs of some improvement in industrial activity, notably in France and Germany. This may generate an increase in steel consumption. But any increased buying might equally go to imports.

In long products – with certain exceptions – imports are less of a threat to European mills. Fewer long-distance imports take place, although there are nearer sources of supply such as Turkey that could test European markets. Wire rod is one of the exceptions, and here the European mills are already making noises about anti-dumping action in an effort to scare off imports that they view as disruptive. They will be keeping their attention closely focused on import licensing and arrivals as 2006 proceeds.

Source: http://www.meps.co.uk/keynote1-06.htm



Anonymous Anonymous said...

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 4:43 AM  

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