Steel Strip

Despite  the European steel mills remaining bullish on third quarter prices, we are beginning to see signs that may indicate a weakening quite soon.

The price increases have never been demand driven, with the mills quoting cost increases and particularly iron ore as a driving factors.

A recent report from Platts reproduced at Yahoo finance indicates that iron ore prices and possibly steel prices are falling:-

Platts – Prices of seaborne iron ore imported into China have fallen by more than 20% in a month, from a peak of $186 per metric ton (/mt) on April 20, 2010 to $147.5/mt on Monday, May 24, 2010, according to Platts data. Platts is a leading global energy and metals information provider and on June 2, 2008, became the first independent publisher to provide daily price assessments for iron ore reflective of the transactable value in the spot open market.

The drop in value of this benchmark iron ore – the key steel-making ingredient shipped into China, the world largest steel maker – mirrors similar declines for basic raw material commodities around the globe. China imports more than 60% of the world’s seaborne iron ore supplies…….

Steel prices are also on the retreat, Platts data shows. Hot rolled coil, the base material for the automotive and so-called white steel good industries, is also being knocked by the bearish tone in many world markets, says Francis Browne, Platts global director of steel and metals market reporting.  Prices for steel coil destined to Europe and the Middle East have lost more than $80 per metric ton over a similar month-long period as for iron ore, with base steel material now trading at $585/mt in the Black Sea, a price level not seen since March 25, 2010, he said.

"History shows a tight correlation between economic concerns and the down-trending financial markets to base materials prices," explained Browne. "For example, iron ore hit a low of $57.00 per metric ton in November 2008 at a time when the ‘credit crunch’ buffeted financial and commodity markets."

Full report at Yahoo

Steel prices have begun to fall in India according to a report over at Bloomberg, and it’s difficult to understand the continuing price aggression in Europe with demand remaining very subdued.

I have never made a secret of the fact that I believe that the steelmakers increase prices too quickly whenever they believe an opportunity presents itself, and increases of £250 so far this year in the face of weak demand has always been a risky tactic. The danger for industry and the European economy in general is that the steel producers will reduce capacity in an attempt to protect prices rather than submit to the vagaries of supply and demand.