Unstable equilibrium

The market for hot-rolled band (HRB) presently is either steady (China, Northern Europe, South America, the CIS, Japan) or in a condition of moderate decline (the world market, USA, Southern Europe, India).  Steel buyers in many regions appear to be apprehensive about the near-term price trend.  The mills’ orders in a number of countries, including their export orders, don’t appear to be particularly good.  Yet, spot hot-rolled band prices are not plummeting as they might have in the past under similar conditions.

What does one make of this condition?

The concentration in the steel sheet-producing sector industry outside of China has changed behavior patterns.  Prices are far more “sticky” on the downside as the mills seek to vary production rather than price.     

Should HRB prices fall another 10-20% (which seems to be a fair possibility especially in the United States) and then bottom, the low for the price would still be far above the lows in July 2005. 

Steel buyers are in a conundrum.  As pointed out by Pat McCormick, who has just joined World Steel Dynamics as a managing partner after 30 years at Emerson, most recently as VP Global Steel, buyers are wondering how deep and extended the period of price decline may be because they need to decide what to do about 2007.  The consequence of the conundrum is the need to better balance the steel price risk according to Pat.