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Global steel supply may be easing
October 2004
The slowdown in Chinese demand for imported steel has now become quite marked. July's figures from MEPS International show imports of finished and semi-finished products languishing well below 3 million tonnes for the third month in a row. This is more than 1 million tonnes per month less than the country was importing during the February/April period.
Add to this the increase in Chinese exports - which on a monthly basis have more than doubled since the start of this year - and the global supply/demand balance should be starting to tilt away from shortages. One would expect steel prices around the world to wobble under the influence of increased output and reduced offtake by the largest importing country.
However, steel prices are holding firm, and even registering further increases in most parts of the world. Global steel production is up 4.6 percent so far this year, even without China, but this rise is, not yet, causing over-supply. It is apparent that the slack is being taken up elsewhere.
Other Asian countries are in the forefront of the global rise in steel demand. Japan and several South east Asian countries are among them. The shipbuilding industry is just one example of the steel consumption boom. Shipyards in Japan, South Korea and elsewhere are fully booked with orders for months to come, as shipowners strive to cash in on booming freight rates. This has put a severe strain on supplies of plate, and regional prices for medium-term supply contracts are reported to be rising by $US50 per tonne each quarter.
India is also contributing to the upsurge in Asian steel demand. In the April/July period, Indian steel imports rose by close to 15 percent compared with the same period last year (according to estimates by the Ministry of Steel), and the country's steel exports fell by more than 25 percent.
Any exports not required by China are likely to seek a home in North America. There have been reports of Brazilian mills, for example, diverting their shipments to the USA in order to obtain better returns. US prices are the highest in the world, and this is now being translated into increased imports.
For the first half of this year US steel imports were more than 15 percent higher than in the same 2003 period. Provisional figures for July showed a fall of 12 percent from June - quite surprising considering the high level of US prices. July's imports were nevertheless 43 percent greater than in June 2003 when the Section 201 import tariffs were still in force.
Rising domestic demand in Russia has severely reduced the volume of steel available for export - particularly flat rolled products. Steel consumption is also increasing quite strongly in the Middle East and South America.
Concerns about the Chinese 'bubble' bursting have become more muted. Imports have been falling since May but world prices have continued rising. Steel demand is growing in many other countries, and world consumption is sure to be at a record level this year.
However, much of this extra purchasing is undoubtedly speculative, and will make the fallback in prices - when it inevitably comes - that much quicker. This is particularly relevant after the surprisingly sharp rise in prices over the past two months.
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