Buyers win two rounds in steel’s boxing ring

The global steel sheet-producing industry has just received a one-two punch.  First, an initial decline in the price of hot-rolled band on the world export market; second, a precipitous fall in the United States in the price of prime automotive scrap. 

Will a third punch, perhaps a knock-out blow, be delivered in the third or fourth rounds (the months just ahead)?  WSD thinks not – unless global steel demand is unusually weak in the second half of 2006, which is not expected, but could occur as a consequence of the surge in energy prices.  We expect the steel mills to pick themselves off of the canvas in the fifth round (the fourth quarter) and win the fight in 2007.     

Body blow #1:  The world export price for hot-rolled band (HRB) for the Tier I mills in the past few weeks has apparently fallen by about $40 per tonne, FOB the port of export, to about $570 per tonne for Tier I mills (and less for others).  Moreover, in China, even though the home ex-works HRB price has rallied in the past week by about $10 per tonne to $377 per tonne, it is still far below the June 2006 peak price of $465 per tonne. 

Body blow #2:  On July 31, the Ford Motor auction price for automotive bundles in the United States for August delivery fell by a record $109 per gross ton.  Three days earlier, the Chrysler auction price had fallen by $85 per ton, setting the stage for the subsequent larger collapse.  Hence, the price delivered to steel plants is now about $286 per ton versus $381 per ton in July.  Since the supply/demand balance for all steelmakers’ metallics sits in the same global bathtub, the scrap price decline in the USA is sure to affect the price of steel scrap, pig iron and steel scrap substitutes in other markets.