steel market futures briefing

STEEL MARKET FUTURES BRIEFING Analysis of the global long product and raw materials markets incl. rebar, wire rod, billet, scrap, HBI & DRI North America , Europe , Asia , Emerging Markets STEEL MARKET FUTURES BRIEFING Table of contents

Executive Summary We commence our coverage of steel long products as prices reach record highs. We believe that there is further to go on the upside, but the current

Page. 1

Executive Overview

Page. 6

North American Markets -

Page. 11

surge will reach a peak shortly. As such, there is more risk to the downside than up. Our summary is as follows:

Nafta countries

•

Page. 14

EU-25 countries

•

China, Japan, South

•

Korea, Taiwan & ASEAN

•

Emerging Markets -

In 12 months however, global long product prices will fall around 20% from the peak.

countries

Page. 18

We are forecasting that the peak will be in May 2008, and our basket will be around 10% higher than at present.

Asian Markets -

Over the last twelve months, our basket of global long products has risen by 44%.

European Markets -

March, 2008

On average, global long product prices in 2008 will be 40% above the average in 2007.

CIS, Middle-East, South America & South Asia

NEW RESEARCH SERVICE STEEL MARKET FUTURES BRIEFING

Global* long product prices ($/tonne) Ferrous scrap

Billet

Rebar

Wire rod

450

813

849

851

m-o-m % ch.

10.1%

15.2%

13.5%

9.8%

y-o-y % ch.

33.3%

53.5%

43.2%

45.6%

March 2008

Dear Reader GFMS Metals Consulting has just launched the Steel Market Futures Briefing. This detailed Monthly Report (plus regular Updates) will cover billet, rebar, wire-rod and related raw materials such as scrap, HBI and DRI and will provide

Global* long product price forecast ($/tonne)

April 2008 m-o-m % ch.

monthly price forecasts for the next year. As steel futures trading becomes more established on exchanges such

Ferrous scrap

Billet

Rebar

Wire rod

486

865

902

914

8.1%

6.5%

6.3%

7.4%

52.0%

53.8%

45.2%

48.3%

as the LME and DGCX, this research service will examine in more detail the relationship between the physical and futures markets. We believe that the upcoming launch of steel futures trading on the LME will increase the need for

y-o-y % ch.

*This is an average of all relevant regional prices Source: GFMS-MC

detailed analysis on all aspects of the long products sector. Companies can subscribe just to the regions that affect their business - North America, Europe, Asia and Emerging Markets. This approach offers subscribers the opportunity to make massive savings compared to some other

Published by: GFMS Metals Consulting Ltd Hedges House, 153-155 Regent Street London W1B 4JE, UK Tel +44 (0) 20 7478 1777 Fax: +44 (0) 20 7478 1779 [email protected] www.gfms-metalsconsulting.com

newsletters that cover the sector.

Contributors: Neil Buxton, Philip Klapwijk, Paul Walker, Shairaz Ahmed, Peter Roberts

Disclaimer: Whilst every effort has been made to ensure the accuracy of the information used in this document, GFMS Metals Consulting Ltd cannot guarantee such accuracy and GFMS Metals Consulting Ltd does not accept responsibility for any losses or damages arising directly, or indirectly, from

In order to get the next report (March 23) of the Steel Market Futures Briefing, please send your details to: [email protected].

the use of this document.

STEEL MARKET FUTURES BRIEFING

Canadian housing units under construction have held at high levels even as US housing construction has tumbled 205,000

US$ bn

US residential and non-residential construction expenditure

750

195,000

This series appears to have peaked

700

185,000 175,000

650

165,000

600

155,000

550

145,000 135,000

500

Residential

450

Non-residential

125,000 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 04 05 05 05 05 06 06 06 06 07 07 07 07 Source: Ecowin, GFMS-MC

400 Jan 05

Jul 05

Jan 06

Jul 06

Jan 07

Jul 07

Jan 08

Source: Ecowin, GFMS-MC

Our analysis suggests that demand is weak in mature

markets and limited additional supply will keep the market

economies, and this increase in prices is being driven solely

tight and vulnerable to price spikes.

by emerging markets. A reflection of this can be seen in prices in Europe and North America, which are lower than

CONSTRUCTION MARKETS BRIEFING

in the CIS, Middle East, Latin America and North Africa.

Long product demand is fundamentally driven by the

Europe is currently a net exporter of long products, while

construction market. As such, our analysis of the economic

the US imports of long products are at their lowest for

background will be focused on the construction market with

many years.

the occasional reference to general manufacturing output or other indicators that will have an impact on the future of

Reduced export supply from Russia and Ukraine thanks to

construction.

higher domestic demand is echoed by smaller suppliers such as Egypt, or other North African countries, and Brazil.

US non-residential expenditure dips in January

Chinese supply to the global market has also shrunk due to

In the USA, non-residential construction expenditure fell

higher export tariffs, although we believe the current high

1.2% month-on-month in January, contributing to a 1.7%

prices will begin to lead to an increase in Chinese export

month-on-month fall in total construction expenditure.

volumes from Q2, as spare capacity is present within

Residential construction was down 3.0% month-on-month,

China. Meanwhile markets in the GCC and other emerging

while even public sector expenditure fell 0.2% month-on-

economies continue to draw in long products.

month. In year-on-year terms, construction expenditure fell 3.3%. This was the second consecutive monthly decline

The short and medium term outlook

in public expenditure indicating that falling tax revenues

This publication will address the short (1-3 month) and

in the state economies may be hitting expenditure here.

medium-term (3-12 month) fundamental aspects of the

It was the first downturn in non-residential construction

steel long product markets, with specific reference to steel

expenditure for several years and indicates that we may

futures. All futures markets over time reflect the changing

have hit the top of the cycle.

developments of their underlying physical markets and we expect steel to be no different.

Weakness on the European periphery may be spreading

Our short-term view is that steel prices will continue to rise

In Europe, the construction market is weakest in Southern

through Q2, but will probably peak in April or May. By Q3,

Europe (notably Spain, but also Italy) and in Europe and

we believe that demand will have softened both seasonally

increasingly the UK. However, German and French numbers

and on a fundamental basis, while the current panic

are also beginning to move downwards after initially

purchasing may lead to higher inventories and will probably

holding up much better. French housing starts are falling

draw out more supply from high-cost areas. As such, in the

into year-on-year declines at the end of Q4 after growing

medium-term, we believe that prices will come off highs,

strongly for much of the year.

but will remain well above 2007 averages as higher raw material pricing combined with strong demand in emerging

2

GFMS METALS CONSULTING M E TA L S C O N S U LT I N G

STEEL MARKET FUTURES BRIEFING

Year-on-Year change in Spanish housing starts

Year-on-Year change in French housing starts

30%

25% Growth is moving into negative territory

20%

20%

15%

10%

10% 5%

0%

0%

-10%

-5% -10%

-20%

-15%

Still trending down

-30%

-20%

Sep 04

Jan 05

May 05

Sep 05

Jan 06

May 06

Sep 06

Jan 07

May 07

Sep 07

Source: Ecowin, GFMS-MC

Dec 04

Apr 05

Aug 05

Dec 05

Apr 06

Aug 06

Dec 06

Apr 07

Aug 07

Dec 07

Source: Ecowin, GFMS-MC

FUTURES MARKET BRIEFING

Japanese construction plummets All Japanese construction data continues to point downwards after the negative response to changes in the

LME starts trading

building codes for earthquakes last year. Year-on-year

The LME has now been running a grey market for billet

construction starts are down in excess of 40% for Q4, and

with limited volumes for the last two weeks. While

although there may be a slight pick-up through early 2008,

volumes have been small, it is interesting to note that

we do not expect any major recovery.

the forward market has moved in line with the physical market. Six-month forward prices have risen from around

Other Asian markets continue to out-perform

$750/tonne to around $850/tonne over the past fortnight

The chart on Page 3 highlights the upswing in Taiwanese

– approximately in line with current prices.

construction, while Chinese construction growth also continues to move ahead. Smaller Asian economies such

DGCX follows the market up

as Vietnam and Malaysia are also seeing infrastructure

As rebar prices for physical delivery to Dubai soared, so

booms, while even laggards such as Thailand are seeing

prices at the DGCX moved up, approximately in line with

slight year-on-year gains, albeit from low levels. After a

the market. Rebar contracts for April delivery started at

slow 2006, South Korean construction is also booming.

$856/tonne at the beginning of March and rose to over $900/tonne in the second week of the month. We would expect it to rise even more quickly at the start of trading during the week of March 17th.

Year-on-Year change in Japanese housing starts 20%

30%

10%

Year-on-Year change in Taiwanese building permits residential and non-residential

20%

0%

10%

-10%

0%

-20%

-10%

-30%

-20% Residential construction collapsed in the second half of 2007

-40%

The Taiwanese construction sector is in an upswing

-30%

-50%

-40% Dec 04

Apr 05

Aug 05

Dec 05

Source: Ecowin, GFMS-MC

Apr 06

Aug 06

Dec 06

Apr 07

Aug 07

Dec 07

Dec 04

Aug 05

Dec 05

Apr 06

Aug 06

Dec 06

Apr 07

Aug 07

Dec 07

Source: Ecowin, GFMS-MC

GFMS METALS CONSULTING M E TA L S C O N S U LT I N G

Apr 05

3

STEEL MARKET FUTURES BRIEFING Construction Economics May-07

NAFTA US housing starts (million units) Year-to-date % change Y-o-Y % change

Jun-07

Jul-07

Aug-07

Sep-07

Oct-07

Nov-07

Dec-07

Jan-08

1.474

1.468

1.371

1.347

1.182

1.274

1.178

1.004

1.012

-26.5% -24.5%

-25.4% -19.9%

-25.0% -22.1%

-24.4% -19.5%

-25.3% -33.3%

-24.4% -13.3%

-24.4% -24.7%

-25.5% -38.4%

-27.9% -27.9%

US residential ($bn)

48.0

50.6

51.1

51.5

46.5

44.7

40.5

34.9

30.6

Year-to-date % change

-18.6%

-18.1%

-17.8%

-17.5%

-17.5%

-17.6%

-17.8%

-17.9%

-20.9%

Y-o-Y % change

-17.8%

-16.1%

-16.0%

-15.7%

-17.3%

-18.5%

-19.9%

-20.2%

-20.9%

US non-residential ($bn)

52.9

56.1

56.5

59.6

59.5

58.8

56.7

52.2

47.3

Year-to-date % change Y-o-Y % change

15.2% 14.9%

14.7% 12.9%

14.5% 13.2%

14.4% 14.3%

14.8% 17.2%

15.2% 18.9%

15.5% 18.2%

15.6% 17.1%

13.4% 13.4%

Canada housing starts (000 units)

236.7

225.7

221.6

231.1

277.3

226.0

230.3

184.7

222.7

Year-to-date % change Y-o-Y % change

-4.8% 6.2%

-4.8% -4.3%

-4.9% -5.6%

-3.3% 9.5%

0.7% 37.9%

0.8% 1.0%

0.7% 0.1%

-0.7% -16.1%

-14.0% -14.0%

Mexico - gross capital fixed formation (index)

181.0

182.6

183.9

185.0

185.7

186.4

187.1

Year-to-date % change Y-o-Y % change

5.6% 6.2%

5.8% 6.6%

5.9% 6.7%

6.0% 6.7%

6.1% 6.6%

6.1% 6.4%

6.1% 6.5%

Europe Eurozone - gross capital fixed formation (EUR mil)

(1)

Y-o-Y % change

492,094

477,603

7.7%

7.8%

Germany new orders construction (index)

79.6

83.1

84.4

71.1

74.4

80.9

60.3

68.4

Year-to-date % change Y-o-Y % change

8.2% 4.5%

7.8% 6.0%

8.9% 14.7%

7.2% -3.3%

5.8% -4.2%

7.0% 17.6%

6.0% -4.4%

5.6% 0.7%

Spain - total housing starts (units)

50,901

58,818

49,567

49,738

49,648

Year-to-date % change Y-o-Y % change

-7.9% -16.9%

-8.9% -13.3%

-8.2% -3.0%

-10.1% -22.5%

-12.1% -26.6%

Italy - residential survey (index - %)

12.7

10.4

11.1

18.2

17.1

18.5

16.9

20.2

15.3

Year-to-date % change Y-o-Y % change

-11.3% -22.6%

-17.9% -45.5%

-22.9% -46.6%

-18.2% 19.0%

-14.9% 14.8%

-12.3% 10.8%

-10.8% 4.3%

-8.6% 14.1%

10.9% 10.9%

Italy - non-residential survey (index - %)

14.6

15.6

14.5

17.2

17.2

17.3

12.5

14.8

10.3

Year-to-date % change Y-o-Y % change

-42.4% -40.2%

-40.2% -28.8%

-41.8% -49.3%

-38.3% -7.0%

-34.5% 11.0%

-32.0% -4.4%

-31.6% -25.6%

-28.2% 54.2%

94.3% 94.3%

France - housing starts (units)

36,112

40,006

37,759

35,529

36,772

36,153

30,755

30,558

Year-to-date % change Y-o-Y % change

-6.9% 7.5%

-4.6% 5.7%

-0.4% 29.9%

1.1% 12.3%

1.0% 0.5%

12.6%

-14.9%

7.8%

Asia Japan - housing starts (units)

97,076

121,149

81,714

63,076

63,018

76,920

84,252

87,214

86,971

Year-to-date % change Y-o-Y % change

-4.1% -10.7%

-2.2% 6.0%

-5.4% -23.4%

-10.4% -43.3%

-14.4% -44.0%

-16.7% -35.0%

-17.7% -27.0%

-17.8% -19.2%

-5.7% -5.7%

China - residential under construction (sq metres - mil)

146,859

158,861

113,445

90,653

90,868

102,316

86,444

204,747

Year-to-date % change Y-o-Y % change

20.8% 17.5%

20.8% 20.8%

22.2% 47.2%

22.1% 19.1%

20.9% 1.1%

22.0% 47.1%

22.2% 27.3%

21.0% 10.5%

China - fixed asset expenditure (CNY bn)

433,466

639,609

465,772

456,000

517,354

479,143

540,195

674,220

Year-to-date % change Y-o-Y % change

15.6% 17.3%

16.5% 18.5%

16.1% 14.4%

17.4% 25.4%

16.9% 13.8%

17.2% 20.1%

17.3% 17.5%

17.9% 22.2%

South Korea - new order construction (KRW)

1,621,453

1,614,888

1,491,415

1,354,182

1,616,076

3,285,741

3,694,463

5,304,314

Year-to-date % change Y-o-Y % change

41.2% 15.6%

34.6% 6.6%

36.4% 51.1%

39.3% 72.5%

25.2% -32.3%

34.5% 104.2%

34.1% 32.1%

34.2% 34.6%

Taiwan - total building permits

12,184

7,879

10,736

7,614

7,547

8,662

10,665

8,069

Year-to-date % change Y-o-Y % change

-10.0% 20.5%

-13.5% -29.3%

-14.4% -18.3%

-11.9% 15.0%

-11.8% -10.6%

-9.8% 13.4%

-9.4% -5.6%

-9.2% -6.6%

Emerging Brazil - fixed asset investment (index)

(2)

Y-o-Y % change

133.4

136.4

5.8%

6.0%

Russia - total dwelling area commenced (m2 millions)

2.8

6.0

3.1

3.7

6.0

4.1

5.9

16.4

3.2

Year-to-date % change Y-o-Y % change

42.1% 27.3%

35.0% 20.0%

36.5% 47.6%

34.6% 23.3%

31.3% 17.6%

29.6% 17.1%

29.4% 28.3%

19.4% -1.2%

6.7% 6.7%

Source: Ecowin, OECD & GFMS-MC Notes: (1) Eurozone - gross capital fixed formation, (2) Brazil - fixed asset investment: all show quarterly data

While volumes on the rebar market have been low, prices

With the LME now offering billet futures and DGCX

have been very close to physical market transactions.

offering rebar futures, there can theoretically be

With rebar spiraling, it does give some opportunity for

arbitrage opportunities for re-rollers within the Gulf

construction companies in the region to fix prices for

to ensure margins ahead of time, although the lack of

longer-term contracts. Indeed, we understand that with

complementary dates makes this slightly difficult.

the first physical delivery of steel against the contract last month, some early users are indeed getting that

The future of steel futures

steel at low prices. Moreover, the most recent surge may

Crude steel production in 2007 was 1.3bn tonnes. At an

encourage more users to actually participate in hedging

average price of $800/tonne, that is a physical market

rather than using the market as a proxy indicator for the

size of more than $1 trillion. The most commonly-used

physical market. With prices rising almost 30% over Q1,

argument against the use of steel futures is that the

contractors will have made significant losses on fixed price

market is too big and products are too diverse – we agree.

contracts if they were not hedged. With rebar being a

Instead, what is happening and what will grow is the

significant proportion of the construction cost in the UAE,

development of futures trading of specific steel product

this will be hitting margins.

markets in specific regions. In April, the London Metal Exchange will officially launch steel billet futures in the

4

GFMS METALS CONSULTING M E TA L S C O N S U LT I N G

STEEL MARKET FUTURES BRIEFING

LME six-month forward billet prices ($/tonne)

880 860 840 820 800

Far East

780

Mediterranean

760 740 720 700 Feb 08 Feb 08 Feb 08 Mar 08 Mar 08 Mar 08 Mar 08 Mar 08 Source: LME

biggest effort to date, but this follows the launch in Dubai for rebar and we believe that other futures markets will be developed in Iran, India, China, the USA and elsewhere to serve different products in regional markets. This month alone there were more announcements on a potential Chinese coke futures market as well as Shanghai rebar and wire rod. The development of multiple regional futures trading targeting different product groups is in fact a reflection of the different patterns of physical steel trading. What we envisage is a Darwinian development whereby some will work, while others will not, while others will create a symbiotic relationship facilitating arbitrage. In 2007, we estimate that global rebar consumption was 235m tonnes, while wire rod was close to 160m tonnes. Other long products such as sections were 120m tonnes. These are huge markets. On the other hand, billet is much smaller and relatively homogenous. GFMS Metals Consulting estimates that the global merchant billet market has been steady at around 25m tpy for the last five years. Nevertheless, at current prices of $800/tonne, that is equivalent to a $20bn market. Compare this to the physical market in copper, nickel, aluminium or zinc where the futures markets are well established and even using the inflated values of 2007, the physical market sizes are $128bn, $54bn, $100bn, and $37bn respectively. The target market is therefore reasonably-sized, there are advantages for producers, consumers and traders in having a forward price for the material and we expect that the launch will be successful.

GFMS METALS CONSULTING M E TA L S C O N S U LT I N G

5

NORTH AMERICAN MARKET STEEL FUTURES BRIEFING

900

US scrap and long product prices ($/tonne)

US domestic vs import rebar ($/tonne)

950

800

850 Domestic rebar

700

750

600

Imported rebar

500

Ferrous scrap

400

Domestic rebar

650 550

Domestic wire rod

300

450

200

350

100 0 Jan 03

Jul 03

Jan 04

Jul 04

Jan 05

Jul 05

Jan 06

Jul 06

Jan 07

Jul 07

Jan 08

Source: GFMS-MC

250 Jan 03

Jul 03

Jan 04

Jul 04

Jan 05

Jul 05

Jan 06

Jul 06

Jan 07

Jul 07

Jan 08

Source: GFMS-MC

NORTH AMERICAN FUTURES BRIEFING

from stockists early in the month that had bought at lower prices earlier in the year.

US mills have an opportunity to have a great year

Taiwanese suppliers have virtually completely withdrawn

The key economic data was the decline in month-on-month

from the market thanks to robust domestic demand,

non-residential construction expenditure in January. Should

leaving Turkey as the only significant offshore supplier.

this trend accelerate then long product mills could face a

Even offers from Mexico have been drying up as domestic

reduction in volumes in the second half of the year.

demand there soaks up more material. As Turkish prices have soared on a day-by-day basis, we do not realistically

Inventories for now remain low, but it is unclear as to what

see any April arrivals from Turkey lower than $920/tonne

degree of current purchasing is speculative and will go into

($835/ton). Early in March however, some material that

inventory or be cancelled if final orders are not as strong

was previously delivered was being sold at around $760/

as expected. We believe that while inventories will build

ton fob truck.

over Q2, the rate of build will not excessive as the market remains fundamentally short due to a lack of imports.

That leaves plenty of room for US mills to increase domestic prices in April without facilitating imports. While

North American long product prices have soared since the

scrap prices are up $10/ton or so in March, we expect

beginning of 2008, but still remain below international

them to be up even more in April. As such, we could see a

levels, thus imports will remain low. With the structural

hike of $50-100/ton in rebar prices at that point.

import dependency, US mills are able to keep volumes at high levels and gain a higher market share of a shrinking

Wire rod braced for further hikes

market.

Following a $50/ton hike for March sales, ArcelorMittal followed up with a $40/ton increase for April. Other mills

As long as US mills keep an eye on international prices,

are expected to follow suit. Low carbon material starts at

they should be able to hold this situation throughout the

$750/ton for March sales with high carbon from $800/ton.

year. However, if international prices fall and US mills keep prices high for an extended period beyond this point,

The US mills have been able to raise prices for wire rod in

then an increase in imports will feed through to higher

part thanks to the low level of imports. This looks set to

inventory, excess supply and a sharp plunge in prices.

continue with the most recent hike in Turkish prices. While

This is historically the fate of the US market, and one

in late February, Turkish material could be secured for

which despite the internationalization and consolidation of

$875/tonne cif ($795/ton) or even lower, the most recent

ownership, we still expect to occur later in 2008.

hikes have pushed prices up to at least $910/tonne cif ($825/ton). Chinese offers are even higher.

Expect a sharp increase in rebar prices Domestic US rebar remains a bargain compared to import

With the market in such structural deficit – imports

offers. Prices on an ex-mill basis in mid March were

accounted for 43% of supply in 2007 and 62% in 2006,

$695/ton, although some discounted prices were available

the US mills should be able to get the requested increase

6

GFMS METALS CONSULTING M E TA L S C O N S U LT I N G

NORTH AMERICAN MARKET STEEL FUTURES BRIEFING

US wire rod market supply and demand

700

The import decline has reduced supply to a greater extent than the demand fall

600

US rebar market supply and demand

1,200 1,000

000 tons

000 tons

500 400 300

Imports are running at very low levels

800 600 400

200

200

100 0

0 Jan Jun Nov Apr Sep Feb Jul Dec May Oct Mar Aug 03 03 03 04 04 05 05 05 06 06 07 07 Shipments

Source: AISI, GFMS-MC

Imports

Jan Jun Nov Apr Sep Feb Jul Dec May Oct Mar Aug 03 03 03 04 04 05 05 05 06 06 07 07 Source: AISI, GFMS-MC

Shipments

Imports

as buyers have little other option. As the chart above

been weak, truck demand has been improving. Finally, the

highlights, domestic output has been steady, while imports

high price of wire rod is pushing up wire product prices,

have steadily declined from offshore sources (particularly

and these continue to be undercut by imports – see below.

China) as US prices are not attractive enough to bring in that material. In January, preliminary numbers suggest

It is our view that although demand is not strong, the

that imports were 87,139 tonnes compared to 186,217

current supply is insufficient, and stocks are not sufficient

tonnes in January 2007. Chinese imports dropped from

to be able to meet the excess demand over existing

114,929 tonnes to 14,666 tonnes, which accounted for

supply. This will lead to some buyers sourcing offshore,

virtually all the decline.

irrespective of the price and then passing it on to consumers. This should facilitate further price increases, as

The mills can also point to the increase in scrap prices in

mills are unlikely to leave significant cash on the table.

March as a contributor to the increase, while a 10,000 ton loss of output at Ivaco in February has also tightened the

However, the risk of overbuilding inventory should not

market. Wire drawers have also noted that the mills have

be ignored. Mills are to a large extent refusing to supply

been reluctant to add shifts and have kept back output.

extra tons to buyers beyond their normal purchasing.

In addition, demand cannot be ignored as a factor. Non-

What is not clear is whether these extra tons are buyers

residential construction has been strong until very recently,

attempting to build inventory at lower prices or whether

although the most recent data should be interpreted as the

it is demand-led. It is our view that it is primarily a

peak of the market in our view. Even if auto demand has

speculative factor – certainly that is what has happened in every other tight market.

US rebar to scrap margin ($/tonne)

450

Finished wire products imports continue to arrive

400

Nevertheless, while wire rod import prices are high, wire drawers are not necessarily able to pass on all the price

350

increases as imports of finished wire products continue to

300

arrive from China. We note that there is no 15% export

250

duty on these products, and they get a full rebate on the input VAT price, although they do still pay the VAT

200

on exports. As such, they are buying rod at the Chinese

150

domestic price of RMB5,050/tonne in Shanghai, which

100

is equivalent to $600/tonne – nearly $300/tonne below April prices in the USA. We note that Vulcan Threaded Rod

50

filed an anti-dumping petition against Chinese imports of

0 Jan 03

Jul 03

Jan 04

Jul 04

Jan 05

Jul 05

Jan 06

Jul 06

Jan 07

Jul 07

Jan 08

threaded wire rod in March. The company complains that Chinese imports now have two-thirds of the US market.

Source: GFMS-MC

GFMS METALS CONSULTING M E TA L S C O N S U LT I N G

7

NORTH AMERICAN MARKET STEEL FUTURES BRIEFING North American long steel statistics

USA*

Canada*

Rebar

Shipments Imports Exports Consumption

2006 7,419 2,587 301 9,705

2007 8,028 1,861 335 9,554

Q1 07 2,026 565 88 2,503

Q2 07 1,905 579 84 2,400

Q3 07 2,043 534 80 2,497

Q4 07 2,054 183 80 2,157

Wire rod

Shipments Imports Exports Consumption

1,967 3,046 151 4,862

2,031 1,538 104 3,465

498 464 26 937

503 474 28 949

488 377 24 841

542 224 26 740

Rebar

Output Exports

472 36

500 13

105 7

142 6

109 0

131 0

Wire rod

Output Exports

644 413

785 473

194 117

193 114

179 105

219 137

Sources: AISI, Statcan, GFMS-MC *Note: US data is in short tons, Canadian data is in metric tonnes

Where could more wire rod come from?

greater volumes. High domestic demand has

China is the obvious supplier, but wire rod export prices

restricted export availability and again the two

out of China are currently $840/tonne fob – equivalent

major suppliers are controlled by interested parties

to around $920/tonne cif Gulf port ($835/ton) and above

in the USA.

domestic prices. Moreover, Chinese mills are now pushing for $870/tonne fob for April shipment, and Turkish prices

•

Indonesia – while ArcelorMittal Indo’s duty is only

are likely to be close to $900/tonne fob although sales at

4.06%, it did not ship to the USA in 2007 and

that level have yet to be completed. Only if those export

given the high freight rates and low prices, as well

prices fall, would volumes then come to the USA, but we

as a lack of interest in disrupting the market, we

do not expect that in the short term – see Asia section.

consider it unlikely to ship again.

The strength of the euro against the dollar and high freight rules out European supply as well.

•

Ukraine (ArcelorMittal Kriviy Rih – 116.1%) has been completely absent from the market. Again,

In the medium term, another alternative is the 5-year

we see little disruption as ArcelorMittal is unlikely

sunset review on wire rod imports from Brazil, Canada,

to disrupt the market and is focused on domestic

Indonesia, Mexico, Ukraine, Moldova and Trinidad &

and regional supplies.

Tobago, which is due for a preliminary hearing on April 17th, with a final decision expected by mid-June. With

•

Mexico (ArcelorMittal Sicartsa 20.7%) had very

the repeal of plate and HR coil duties, the ITC has shown

limited volumes in 2007. While they could increase

that it is willing to go against the domestic steel industry

slightly to supply south-western US markets more

and given the current high profitability, we believe that

efficiently, we once again note that ArcelorMittal is

the wire drawing industry could get relief. However, we do

unlikely to disrupt the overall market.

not believe that there will be a sharp step-up in shipments even if they are repealed.

•

Moldova (369.2%) has unsurprisingly with that margin been out of the US market. As it is not

•

Trinidad & Tobago (11.3% AD) exported 93,000

controlled by any of the companies operating in

tons in 2007 compared to 121,000 tons in 2006.

the US market, it is likely to be at least interested

It has thus been a consistent supplier to the US

in supplying the USA, although not necessarily at

market. However, this is down from previous

current prices. However, with a capacity of 800,000

levels, which have been as high as 300,000 tpy. Its

tonnes and a buoyant regional market, there would

close location should mean an uptick in volumes

not be a huge supply.

to the USA, but it has also been successfully supplying Latin America. However, as it is

So how high will prices go?

controlled by ArcelorMittal, it is unlikely to disrupt

Our conclusion is that in the short term, the April increase

the market.

will be accepted and mills will push for further hikes in April for May delivery, which will again be accepted. That is

• 8

Brazil (Gerdau – 4.44% AD and ArcelorMittal

likely to leave May prices at around $850/ton ($940/tonne)

94.73% AD and 6.74% CVD) is unlikely to ship

for low carbon domestics. Imports are still likely to be

GFMS METALS CONSULTING M E TA L S C O N S U LT I N G

NORTH AMERICAN MARKET STEEL FUTURES BRIEFING US long product prices ($/tonne)

Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 2003 2004 2005 2006 2007 2008

ave. ave. ave. ave. ave. ave.

Ferrous scrap (1) 400 425 450 435 410 420 450 400 380 375 360 350 350

yoy % change 19% 42% 61% 50% 41% 35% 38% 25% 25% 10% (9%) (9%) (13%)

Rebar import (2) 900 960 990 990 950 880 820 780 750 730 720 720 720

yoy % change 32% 35% 54% 54% 50% 45% 35% 34% 28% 24% 1% (10%) (20%)

Rebar domestic (3) 805 865 900 920 920 900 850 800 760 750 720 720 720

yoy % change 19% 20% 28% 30% 31% 41% 33% 25% 20% 18% 5% (4%) (11%)

Wire rod import (2) 910 980 1,020 1,040 960 900 840 800 770 750 720 700 700

yoy % change 45% 41% 45% 47% 40% 36% 27% 21% 14% 10% (1%) (20%) (23%)

Wire rod domestic (3) 826 870 940 990 990 950 900 840 800 780 750 730 730

yoy % change 19% 18% 27% 41% 50% 44% 46% 29% 23% 16% 5% (5%) (12%)

138 251 227 244 303 410

81% (9%) 7% 24% 36%

308 515 472 547 621 855

67% (8%) 16% 14% 38%

345 507 535 583 662 826

47% 5% 9% 14% 25%

335 568 511 559 658 881

70% (10%) 9% 18% 34%

351 622 640 649 675 865

77% 3% 1% 4% 28%

(1)

shredded cif average EU mill (2) cif major port (3) ex-mill All prices are an average of a range of prices that are present in the market, and exclude grade and finishing extras Source: GFMS-MC

largely out of the picture, facilitating a further increase in

added material. Until they have a regular commitment to

May for June prices to possibly $900/ton – a level which we

international customers, it is unlikely that they will be more

would consider the likely peak.

than sporadic suppliers. However, traders remain keen to take US billet, particularly given the current limited supply

However, at that point, we are expecting that international

of Brazilian material. Deals were concluded this month

prices could come off peaks, opening up the import market

for US billet at $730-740/tonne fob for sales to Columbia

again. That is also typically a period of lower demand going

and Ecuador – equivalent to around $810/tonne cif. This

into Q3, while it is quite possible that inventories could

remains attractive for US producers given that domestic

have been rebuilt by that point. If US mills respond quickly

rebar is around $800/tonne ex-works, although it should

by bringing back prices, they will be able to maintain

be borne in mind that US mills do have some costs to get

market share. However, if they try and keep prices high,

the billet to port, so the ex-works billet cost may only have

imports could rise into an over-stocked and falling demand

been around $710/tonne.

market in Q3 and prices could fall back quickly.

Scrap up North American billet market analysis

Despite earlier consensus that the market would come off

We estimate that carbon billet imports in 2007 were

again in March following February’s slight decline, prices

452,000 tons out of a total semi-finished import total of

look set to rise $10-20/ton in most markets. This would

6.6m tons. Gerdau Brazil was the largest single supplier at around 210,000 tonnes and around 80,000 tons were also imported from Canada (probably Gerdau Ameristeel as well). As a result, we can see that this is not really a merchant market, but primarily an inter-company market. This was a sharp slowdown from the estimated 862,000 tons of carbon billet imports in 2006, primarily due to the weakening of the US dollar making imports less attractive and consequent low US prices compared to international ones. On the other hand that weakness in the dollar meant that exports jumped from 23,000 tons to 123,000 tons, although again this was mainly to Canada and Mexico with a sprinkling to Caribbean and central American markets. We understand that CMC and Nucor continue to retain an interest in the international merchant billet market, but are currently more concerned with domestic sales of value-

1,200

Forecast US scrap and long product prices ($/tonne) Ferrous scrap

1,000

Domestic rebar Domestic wire rod

800 600 400

Forecast

200 0 Mar 06

Nov 06

Mar 07

Jul 07

Nov 07

Mar 08

Jul 08

Nov 08

Mar 09

Source: GFMS-MC

GFMS METALS CONSULTING M E TA L S C O N S U LT I N G

Jul 06

9

NORTH AMERICAN MARKET STEEL FUTURES BRIEFING take shredded up to around $400/l.ton. We re-iterate our view that fundamentals point to further price increases in Q2:

•

High steel mill operating rates – production of 2.15m tpw is the highest for more than seven years.

•

High export demand – high global steel operating rates continue to draw US scrap to Turkey and Asia.

•

High coke price – spot coke prices of $500-600/ tonne push integrated steel mills to use more scrap in their melt mix.

•

Falling automotive and industrial output – this reduces prompt scrap availability.

•

High and rising steel prices – facilitates higher raw material prices.

We see none of these factors changing over Q2 and expect ferrous scrap prices to reach new highs.

10

GFMS METALS CONSULTING M E TA L S C O N S U LT I N G

EUROPEAN MARKET STEEL FUTURES BRIEFING

900

EU long product prices ($/tonne) Ferrous scrap

800

Domestic rebar

700

Domestic wire rod

1000

EU rebar prices ($/tonne)

1000 900

Domestic rebar

800

600

700

500

600

400

Import rebar

500

300

400

200

300

100 0

200 Jan 03

Jul 03

Jan 04

Jul 04

Jan 05

Jul 05

Jan 06

Jul 06

Jan 07

Jul 07

Jan 08

Source: GFMS-MC

Jan 03

Jul 03

Jan Jul 04 04

Jan Jul 05 05

Jan Jul 06 06

Jan 07

Jul Jan 07 08

Source: GFMS-MC

EUROPEAN MARKET FUTURES BRIEFING

international levels. For most of February and into early March, Italian base prices for rebar were held at €320/ tonne, which with surcharges was equivalent to around

Weak demand in key import markets in Europe (UK, Italy

€540/tonne. However, by mid-March, these were raised to

and Spain) has resulted in falling imports, while exports

€350/tonne and to €565-570/tonne ($860/tonne). Mesh-

are rising as higher prices in the Middle East and North

quality wire rod is now at €570/tonne with drawing quality

Africa are diverting material from domestic markets. This is

up to €20/tonne higher. This is still cheaper than imported

helping to drive up prices closer to international levels, but

material.

with fundamental demand expected to remain weak over the year as a whole, we expect European prices to remain

Spanish mills had to trim their attempts to get higher

below international levels for an extended period despite

base prices for rebar in February, but have pushed base

the high value of the euro. Nevertheless, with imports

price quotes up to €370/tonne with transaction prices of

expected to remain low throughout Q2, EU producers should

€580/tonne for March, although we believe that they will

have no problem in raising prices and maintaining high

continue to struggle to get the full amount and may have

sales volumes as they supply a higher proportion of their

to accept €10/tonne less. Domestic construction demand is

domestic markets.

falling. Housing starts in the year to September 2007 were down nearly 27%.

Poor demand in Western Europe While rebar prices in emerging markets soared in February

In France, February rebar prices were in the region of

and early March, European prices were largely stagnant on

€550/tonne delivered – up around €50/tonne from January.

the back of weak demand. However, even Europe is not an

Mills report relatively strong activity on the domestic

island and prices are likely to adjust upwards in the next

market with exports to other northern Europe destinations

month or so, although we expect that European prices will

as well as North Africa. We expect that mills will get

remain weaker than international levels for some time.

another €20/tonne in March.

As the charts on Page 12 highlight, the EU rapidly increased

North Africa an attractive market

exports in Q4 2007 and imports dropped equally as quickly.

For southern European exporters, markets in Northern

To some extent, this is a seasonal trend as Q4 demand

Africa continue to be attractive and with rising Turkish

tends to be lower in northern Europe, but was exacerbated

offers, they are getting excellent prices. Rebar is now

this year by high inventories and weak demand, which has

being exported at €570-575/tonne ($865-875/tonne)

pulled EU prices below international levels. With EU prices

fob. Wire rod is around €10/tonne higher. This compares

remaining below international ones through Q1, we believe

to just €525/tonne fob for rebar exports in the first week

that this trend in trade will have continued through Q1 and

of March. Spanish mills have been particularly active in

based on forward orders, into Q2.

the export market to North Africa as they struggle to sell volumes in the domestic market.

Southern European prices lag Domestic prices in southern Europe have lagged

GFMS METALS CONSULTING M E TA L S C O N S U LT I N G

11

EUROPEAN MARKET STEEL FUTURES BRIEFING

EU trade in long products* (000 tonnes)

1,100

Net imports/(exports) EU long products* (000 tonnes)

500 400

1,000 900 800

Imports

300

Exports

200

700

100

600

0

500

-100

400

-200

300

-300

Imports

-400

200 Jan 05

May Sep 05 05

Jan 06

May Sep 06 06

Source: Eurofer, GFMS-MC

Jan 07

May Sep 07 07

*3-month average

Jan 05

May Sep 05 05

Jan 06

May Sep 06 06

Source: Eurofer, GFMS-MC

Jan 07

May Sep 07 07

*3-month average

These high prices are being accepted in North Africa. In

Scunthorpe works and is thus passing on the increase

Morocco for example, domestic mills are getting up to

in coal and iron ore prices. With most of its business in

$1,000/tonne on an ex-works basis, indicating that a cif

engineering rod rather than commodity rod and with

price of $900/tonne from European suppliers are attractive

quarterly or long-term contracts, the company is also

to traders. EU mills have duty-free access into Algeria

playing catch-up with the spot market.

and demand there continues to be strong. Other markets

Billet imports likely to fall

include Tunisia and Libya for Italian exporters.

The major European billet consumers are in Italy and

Imports to remain low over Q2

Spain, where they convert imports into finished products.

Nominally, Turkish suppliers are offering a slight discounted

With Turkish exporters getting at least $800/tonne fob,

price to European buyers, but in practice, they are avoiding

this is equivalent to around €540/tonne cif. With domestic

the market and preferring to supply to the red-hot Middle

long product pricing remaining below international levels,

Eastern or North African markets. With Turkish producers

EU buyers are increasingly reluctant to purchase billet

now sold out to the second half of May, very few import

from the international market. In early March, there was

cargoes are therefore expected to arrive between now and

some billet sold by Italian domestic producers for around

the end of Q2. That should allow domestic producers to

€500/tonne ex-works and we believe that buyers would be

dominate the domestic market and will allow them to raise

willing to pay up to €520/tonne now for local supplies. This

prices for near-term deliveries. May rebar cargoes from

remains well below international levels however.

Turkish suppliers to southern Europe are now being quoted

Central Europe flat to up

at around €610-620/tonne cif.

In Poland, domestic prices for rebar are €550/tonne ex-

UK prices on the up for April

works in March. German rebar is available at €550/tonne

UK domestic rebar prices are around £430/tonne (€560/

daf, while Latvian material is at the same price (for April

tonne) in early March – the same as in February. This is

delivery). Domestic wire rod ex-CMC is at €550/tonne and

below import prices, and we expect producers to push up

ArcelorMittal is at €560/tonne. Buyers could have gotten

prices in the second half of March for April delivery to take

lower prices from Belarus for April deliveries for €510/

advantage of higher regional prices. Mills saw a rollover of

tonne daf, but these are now withdrawn. These prices are

scrap input prices in March, but with export prices soaring,

largely unchanged from late February.

they are likely to have to pay more next month, and with domestics below international levels and with Alphasteel

With demand remaining strong and CIS prices rising

not supplying to the market due to its bankruptcy, they

sharply, we expect that domestic producers will be able to

should be able to push through the increase despite a

increase prices again in April.

relatively weak end-use market.

New capacity in Bulgaria Corus has announced price increases for wire rod of

In Bulgaria, the market has traditionally been heavily

£70-90/tonne ($140-180/tonne) from March 31st.

influenced by the Turkish and CIS market and rebar is

Corus produces wire rod via the integrated route at its

often quoted in dollars. Promet raised prices in March

12

GFMS METALS CONSULTING M E TA L S C O N S U LT I N G

EUROPEAN MARKET STEEL FUTURES BRIEFING EU long product prices ($/tonne)

Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09

Ferrous scrap (1) 390 420 430 420 400 390 410 380 360 350 330 320 320

Billet yoy % change import (2) 24% 820 35% 860 46% 880 31% 850 21% 800 20% 760 22% 750 13% 720 11% 700 6% 680 (8%) 660 (15%) 650 (18%) 640

Rebar Rebar yoy % yoy % yoy % change import (2) change domestic (3) change 46% 950 53% 905 42% 42% 980 46% 950 42% 48% 960 52% 960 32% 42% 920 46% 950 36% 48% 900 48% 920 33% 41% 880 47% 900 35% 32% 850 39% 900 38% 26% 820 37% 880 42% 24% 800 36% 870 43% 12% 780 24% 850 41% 6% 780 5% 830 15% (12%) 770 -6% 800 (1%) (22%) 770 -19% 800 (12%)

2003 ave. 152 264 280 346 2004 ave. 235 55% 390 48% 453 62% 476 2005 ave. 224 (5%) 365 (7%) 408 (10%) 441 2006 ave. 244 9% 399 9% 482 18% 551 2007 ave. 313 28% 558 40% 608 26% 646 2008 ave. 390 25% 765 37% 867 42% 885 (1) shredded cif average EU mill (2) cif Southern European port (3) ex-mill All prices are an average of a range of prices that are present in the market, and exclude Source: GFMS-MC

38% (7%) 25% 17% 37%

Wire rod yoy % Wire rod yoy % import (2) change domestic (3) change 960 60% 925 45% 1,000 54% 970 49% 980 58% 980 36% 940 50% 970 40% 920 51% 940 36% 900 50% 920 37% 870 43% 920 39% 840 38% 900 40% 820 41% 890 37% 800 31% 870 34% 800 10% 850 13% 790 (4%) 820 (2%) 790 (18%) 820 (11%) 288 463 433 476 594 882

61% (7%) 10% 25% 49%

338 546 508 527 655 906

62% (7%) 4% 24% 38%

grade and finishing extras

to a minimum of $825/tonne (€543/tonne) and Sidenor

which will further reduce export availability of scrap from

(Stomana) is selling at $835/tonne (€550/tonne) ex-

Bulgaria.

Pernik, although its Bourgas warehouse has a slightly different pricing structure, as it is more exposed to Black

Scrap prices yet to respond fully to international hikes

Sea pricing. These are below Turkish prices, which should

We believe that scrap prices in April will move higher, as

reduce imports going forward. With Stomana starting

buyers will be forced to respond to higher finished product

commercial production of its new 800,000 tpy bar mill this

prices and higher international scrap prices. In March,

month, we would expect to see the Bulgarian price below

German prices were largely unchanged at around €250-

the Turkish import price for some time, as the domestic

260/tonne for shredded. In Italy, prices were up around

market absorbs some of this supply. Despite this, prices

€5-10/tonne to around €285/tonne delivered to northern

are likely to rise in the domestic market over April in line

mill, while French prices also rose by a similar amount.

with international prices. We would also expect to see the

However, with the increase in the value of the euro against

mill begin to export from initial output, and it is targeting

the dollar over the last month, the increase in dollar values

a total of 500,000 tonnes in 2008. This will primarily be to

has been greater.

the EU and the Balkans, but given the prices in the Middle East, this could be an attractive market, despite the higher

Yet Rotterdam export prices rose around $70/tonne on the

freight rate (rail to Bourgas and then export from Black

month to around $460/tonne fob (€300/tonne fob). Even

Sea). The company will be sourcing ferrous scrap locally,

despite the strength of the euro, this will bring material to ports and mills are likely to have to pay up to €2030/tonne more next month for domestic purchases. With

1,200

EU long product prices ($/tonne) Ferrous scrap

1,000

Domestic rebar

finished product pricing higher, mills will be willing to pay up to secure material in our view.

Domestic wire rod

800 600 400

Forecast

200 0 Mar 06

Jul 06

Nov Mar 06 07

Jul 07

Nov Mar 07 08

Jul 08

Nov Mar 08 09

Source: GFMS-MC

GFMS METALS CONSULTING M E TA L S C O N S U LT I N G

13

ASIAN MARKET STEEL FUTURES BRIEFING

Chinese domestic construction steel prices ($/tonne ex-VAT)

SE Asian long product import prices ($/tonne)

650

1000

600

900 Scrap

800

550

Billet

700

500

Rebar

600

450

500

400

400

350

300

300

200

250

100

Rebar Wire rod

200 Jan 03

Jul 03

Jan 04

Jul 04

Jan 05

Jul 05

Jan 06

Jul 06

Jan 07

Jul 07

Jan 08

Source: GFMS-MC

Jan 03

Jul 03

Jan 04

Jul 04

Jan 05

Jul 05

Jan 06

Jul 06

Jan 07

Jul 07

Jan 08

Source: GFMS-MC

ASIAN STEEL MARKETS FUTURES BRIEFING

On the demand side, there has been some talk of very high construction steel prices resulting in order cancellations, but we believe that this is at the margin. On a more

In a strong demand situation, the marginal provider of long

fundamental basis, the US recession could result in a

products is the re-roller. Due to the structural reduction in

weaker second half for Asian economies, reining in some

billet availability as a result of the end of Chinese exports,

demand. High inflation within China may also trigger

Asian billet prices have spiraled higher. This pushes up

higher interest rates and further restrictions on lending

billet prices, which in turn permits integrated EAFs to

for property. High global prices and a slower domestic

justify paying more for scrap.

market could also facilitate higher Chinese exports of long products, which could relieve international supply.

The justification for high billet prices is driven by supply…

• • •

It is our view therefore that additional Chinese supply of long products and a slight slowdown in demand in the

Chinese billet exports have slumped to zero based

second half of the year could ease the tightness. A price

on preliminary January statistics.

correction at that point could be quite sudden. However, with underlying supply remaining tight and operating rates

High demand in Middle East markets is limiting CIS

expected to remain high, the trough of any price fall will

availability to Asia.

be relatively high, any return to buying will result in prices spiking back up again. We therefore expect volatility for

Turkey has virtually exited the Asian supply

the remainder of the year.

market.

SE Asian prices on the up …and demand

• •

In South Korea, rising imported billet prices are driving up finished prices for re-rollers, while high scrap prices are

Strong construction volumes in many major SE

doing the same at EAF producers. Hyundai Steel is the

Asian markets – Vietnam, Malaysia, Philippines.

largest Korean rebar producer and increased prices from March 1st deliveries to Won741/kg ex-VAT ($782/tonne).

Reduced Chinese long product exports has

With the removal of Chinese billet supply, Korean buyers

reduced supply of finished products, consequently

have typically a choice between Japanese and CIS supply.

increasing demand for domestic finished output.

With lower freight rates and a shorter lead time, Japanese billets are preferred, but these are typically limited in

We see little change on the supply front, there could be

availability.

some additional billet supply from Japan, but this will be limited. We therefore continue to believe that reduced

In Thailand, domestic producers are protected by a 10%

supply will provide upward price pressure over the rest of

import duty on rebar, which permits a re-rolling industry.

the year.

Through much of February, domestic rebar was offered at around Bt28,000/tonne ($865/tonne). However, as

14

GFMS METALS CONSULTING M E TA L S C O N S U LT I N G

ASIAN MARKET STEEL FUTURES BRIEFING

SE Asian scrap to rebar margin ($/tonne )

400

SE Asian rebar to billet margin ($/tonne)

100 90

350

80

300

70

250

60

200

50 40

150

30

100

20

50

10

0

0

Jan 03

Jul 03

Jan 04

Jul 04

Jan 05

Jul 05

Jan 06

Jul 06

Jan 07

Jul 07

Jan 08

Source: GFMS-MC

Jan 03

Jul 03

Jan 04

Jul 04

Jan 05

Jul 05

Jan 06

Jul 06

Jan 07

Jul 07

Jan 08

Source: GFMS-MC

imported billet prices have increased in the last few weeks,

volumes have been falling since mid-2006 (see chart

this has pushed up domestic rebar prices, although with

on Page 16), with the knock-on impact of reduced

the construction industry continued weakness, some

rebar supply and a consequent tightening the domestic

buyers have expressed reluctance to purchase at the

market. Buyers have become more creative in sourcing

higher price. Current prices are close to RMB30,000/tonne

billet over the last few months, with recent Taiwanese

($950/tonne).

deals sourcing Mexican billet in late February as well as being regular buyers of Thai and Malaysian material. We

In Taiwan the government has banned billet and rebar

even understand that there are offers of Indian billet in

exports in an attempt to limit the price acceleration.

containers into the SE Asian market, while Canadian billet

Nevertheless, that has not stopped prices rising sharply

has apparently been sold into the Philippine market as

with strong domestic demand and rising import prices.

well. Nevertheless, the primary source is Ukrainian Black

CSC raised its domestic price for wire rod to $810/tonne

Sea supplies, supplemented by Russian material from Far

fob for Q2 sales, but domestic prices for rebar are even

East ports. With strong demand for CIS material in Middle

higher. Grade 40 is around NT$27,200/tonne including VAT

East markets, with lower freight rates, Asian prices have

($850/tonne ex-VAT), with Grade 60 around $30/tonne

been spiraling.

more. With imported billet now in excess of $840/tonne cif, we expect prices will rise again.

This lack of alternative supply is leading to record high prices being paid by SE Asian consumers. They are

In the Philippines, domestic producers are asking for

paying around $850/tonne cif for billet at present. Taiwan,

Peso39,000/tonne ($945/tonne) for G40 rebar for new

Vietnam, Philippines, Indonesia, South Korea and Thailand

sales. There are some producers still selling at lower

are some of the biggest buyers of billet globally. In 2007,

prices based on utilising imported billet at lower numbers.

we estimate that these countries accounted for almost

These low-priced offers are expected to disappear over the

45% of total global merchant billet trade, and imported

month. Malaysian billet is currently quoted at $860/tonne

more than 10m tonnes.

cif, while Ukrainian billet is around $850/tonne for May

Japanese will seek to supply the export market

delivery.

Given a weak domestic construction market, we expect In Vietnam, domestic re-rollers have an 8% import duty

Japanese suppliers to enter the export market for billet and

to work with. Current domestic prices are in the region of

rebar in significant volumes. The change in building codes

Dong15,500/tonne ($980/tonne) for rebar. Even with billet

appears to have had a fundamental impact on construction

import prices rising to $880/tonne cif, this retains a profit

demand, with housing starts down 17.8% year-on-year

margin on the back of strong demand.

in 2007. As a result, we would expect Japanese billet and long product exports to rise over 2008.

SE Asian billet consumers pay high prices The Taiwanese were one of the largest single buyers of

Chinese domestic prices rise

billet in the international market and the loss of Chinese

The majority of Chinese domestic long product output is

supply has hurt them badly. As a result, absolute import

produced via the blast furnace route. Spot iron ore prices

GFMS METALS CONSULTING M E TA L S C O N S U LT I N G

15

ASIAN MARKET STEEL FUTURES BRIEFING prices will continue to rise further. Demand in the short

Taiwanese billet imports (tonnes)

500000

term continues to be strong, and the long product markets are determined by domestic demand, as exports currently account for around 2% of rebar output and less than 5% of

450000

The reduction in C hinese supply has hit availability hard

400000 350000 300000 250000

wire rod.

Export market increasingly attractive in the short term At around $600/tonne ex-VAT, the export price should

200000

be in the region of $810/tonne ($600 plus 17% VAT plus

150000

15% export tariff plus $15-20/tonne freight and loading

100000

charge). In fact, March shipments of wire rod out of China were sold at $840/tonne fob including the 15% export

50000

tariff. While deals are not yet completed, April shipments

0 Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct 05 05 05 05 06 06 06 06 07 07 07 07

are being touted at $870/tonne fob. This suggests to us that the export market is increasingly attractive and may result in higher volumes being offered in April.

Source: ISSB, GFMS-MC

have surged to over $200/tonne cif China, while domestic

Medium-term domestic demand concerns

coal and coke prices have soared on vastly reduced

There are some concerns that a combination of rising

availability. Thus domestic input costs have risen sharply

inflation and falling demand in mature export markets

for smaller long product mills that produce most Chinese

such as North America and Europe could dampen Chinese

long products.

economic activity in 2008. Certainly inflation is rising, albeit driven by food prices, and export growth is likely

Moreover, January and February output was disrupted by

to slow sharply. Should the government continue to

severe weather conditions that restricted the movement

restrict access to credit to property both via restrictions

of steel raw materials. While demand was also impacted,

on borrowing levels and higher interest rates, then this

the end of winter combined with the traditional upturn in

could be a concern. However, we believe it is only likely to

steel ordering after the New Year has resulted in a surge of

result in marginal reductions in demand. However, even a

demand.

marginal reduction in demand could be critical for the steel industry.

Consequently, prices surged upwards on the domestic market from mid-February. Wire rod reached a peak

There is spare capacity within China

around RMB5,100/tonne ($615/tonne ex-VAT) in Shanghai

Chinese rebar output grew 16.8% in 2007 to 101.4m

in early March, before coming off slightly. Rebar prices also

tonnes, while consumption grew 17.1% as exports rose

peaked at around RMB5,050/tonne ($608/tonne ex-VAT) at

over the year as a whole. Moreover consumption growth

the same time, before coming off.

slowed in Q4 to around 15% year-on-year. For wire rod however, while consumption in Q4 was 20% higher year-

It is our view that this correction was largely profit-taking

on-year, year-on-year output growth was just under 7%,

after prices had risen around $100/tonne in the previous

as exports were a higher proportion of output. In fact,

two weeks. With coke, spot iron ore, and ferrous scrap

output fell nearly 5% in Q4 compared to Q3. To us, this

prices likely to continue to increase, we would expect that

suggests that there is now spare capacity in wire rod,

Chinese long product market (000 tonnes) Wire rod

Output Imports Exports Consumption

2006 70,635 706 3,739 67,601

2007 80,382 614 5,904 75,092 11.1%

Aug-07 7,110 327 45 7,392 28.4%

Sep-07 6,962 305 46 7,221 29.4%

Oct-07 6,984 292 43 7,233 23.6%

Nov-07 6,421 362 44 6,739 19.4%

Dec-07 6,719 358 42 7,035 20.6%

Rebar

Output Imports Exports Consumption

86,786 63 5,554 81,295

101,366 50 6,238 95,178 17.1%

8,561 3 422 8,142 19.0%

8,444 4 203 8,244 16.2%

8,707 3 283 8,427 15.3%

8,796 3 178 8,621 14.8%

8,948 3 209 8,743 15.5%

Source: Various, GFMS-MC

16

GFMS METALS CONSULTING M E TA L S C O N S U LT I N G

ASIAN MARKET STEEL FUTURES BRIEFING Asian long product prices ($/tonne)

Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09

Ferrous yoy % Billet Rebar yoy % yoy % China rebar yoy % Wire rod yoy % China wire rod scrap (1) change import (2) change import (2) change domestic (3) change import (2) change domestic (3) 530 43% 850 70% 900 64% 600 58% 910 64% 605 580 66% 900 78% 960 67% 620 66% 975 71% 615 600 82% 940 88% 1,020 79% 600 48% 1,035 85% 595 580 71% 900 73% 1,000 74% 570 46% 1,015 80% 565 550 64% 860 69% 930 66% 540 29% 945 69% 535 530 56% 820 59% 880 53% 530 18% 895 58% 525 540 48% 800 52% 860 51% 550 19% 875 52% 545 500 33% 770 40% 840 40% 540 17% 855 46% 535 475 30% 750 36% 820 37% 530 2% 835 39% 525 450 15% 730 25% 800 26% 510 (7%) 815 28% 505 450 6% 720 11% 780 10% 500 (3%) 795 11% 495 440 (2%) 720 (3%) 770 (6%) 500 (6%) 785 (7%) 495 440 (17%) 740 (13%) 800 (11%) 525 (13%) 815 (10%) 520

2003 ave. 184 266 280 2004 ave. 286 55% 395 48% 451 61% 2005 ave. 249 (13%) 371 (6%) 416 (8%) 2006 ave. 262 5% 393 6% 446 7% 2007 ave. 347 32% 516 31% 572 28% 2008 ave. 518 49% 809 57% 878 54% (1) shredded cif SE Asia (2) cif SE Asia (3) Shanghai market ex-17% VAT All prices are an average of a range of prices that are present in the market, Source: GFMS-MC

345 413 378 347 429 553

20% (8%) (8%) 24% 29%

280 461 430 458 570 893

353 438 397 372 431 553

64% (7%) 7% 24% 57%

yoy % change 56% 53% 38% 37% 27% 20% 18% 16% 9% (4%) (5%) (13%) (14%) 24% (9%) (6%) 16% 28%

and exclude grade and finishing extras

which could result in higher production and exports due to higher prices going forward. If that was coupled with weaker demand, then the move to exports could be quite sharp later in Q2. Even based on spot iron ore prices of $200/tonne and coke prices of $400/tonne, we believe that the majority of smaller mills are profitable at prices of $600-650/tonne ex-mill, while exporters could get even more. We therefore expect to see output rise sharply in March and April, some of which will be directed to the export market. As a consequence, we could see Chinese prices beginning to fall in April or May, which will spread quickly to international markets. Moreover, with up to 10,000 small coal mines expected to come back into production in March following the January disruption, we believe that coke prices could fall again, which would ease cost pressures, and facilitate higher output.

SE Asian long product import prices ($/tonne) 1,100

Chinese domestic construction steel prices ($/tonne ex-VAT)

650

1,000

600

Scrap

900

550

Billet

800

500

Rebar

700

450

600

400

500

350

400

Rebar

300

Forecast

300 200 100

Forecast

Wire rod

250 200 Mar 06

Jul 06

Source: GFMS-MC

Nov 06

Mar 07

Jul 07

Nov 07

Mar 08

Jul 08

Nov 08

Mar 09

Mar 06

Nov 06

Mar 07

Jul 07

Nov 07

Mar 08

Jul 08

Nov 08

Mar 09

Source: GFMS-MC

GFMS METALS CONSULTING M E TA L S C O N S U LT I N G

Jul 06

17

EMERGING MARKETS STEEL FUTURES BRIEFING

CIS long product export prices ($/tonne fob Black Sea)

900

Ferrous scrap

800

900

Billet

700

Turkish long product export prices ($/tonne fob)

1000

Billet Rebar

800

Rebar

600

700

500

600

400

500

300

400

200

300

Wire rod

200

100

Jan Jun Nov Apr Sep Feb Jul Dec May Oct Mar Aug Jan 03 03 03 04 04 05 05 05 06 06 07 07 08

Jan Jun Nov Apr Sep Feb Jul Dec May Oct Mar Aug Jan 03 03 03 04 04 05 05 05 06 06 07 07 08 Source: GFMS-MC

Source: GFMS-MC

EMERGING STEEL MARKETS FUTURES BRIEFING

year. The drop in prices could be quite sudden, but the level to which they will drop will be high, given that we expect the cost of raw materials to remain high.

Our emerging market analysis covers the Middle East, CIS, Latin America and South Asia. In all of these markets,

Turkish prices soar

the story is similar as prices are being driven higher by

Billet, rebar and wire rod prices have been rising on almost

fundamentally strong demand for construction steel. We

a daily basis since late February. The primary drivers are

are seeing a situation where demand is fundamentally

rising ferrous scrap prices and strong demand – primarily

outstripping supply. With no spare capacity at steel

from the domestic market and the Middle East. However,

producers, the quest for the marginal tonne is driving up

we should not ignore other supportive factors that include

prices very quickly.

restricted supply from the CIS and from Middle Eastern and North African suppliers that are focused on their domestic

Historically, what has happened in previous situations like

markets and have reduced shipments to the export market.

this is that stocks get built as buyers place multiple orders

Meanwhile, although European and North American

to secure material. At some point, orders drop sharply

demand is relatively low, there are continued orders

and so does price. However, at present, we see no sign

from these markets that also have no other alternative

of significant stocks being built, with many buyers still

suppliers. As a result, Turkish producers are now sold out

reporting shortages. However, the massive run-up in prices

for March, April and the first half of May, and are increasing

has been driven by speculative buying. Turkish mills over

prices on virtually a daily basis. However, as rebar prices

the last two weeks have essentially sold out 2-2.5 months

pass $920/tonne fob, the only buyers are in the UAE, with

of production. When this arrives in May, buyers may find

other buyers holding off.

that they don’t have the need for additional stock and will

Scrap to billet margins at record highs

stop buying.

By the second week of March, Turkish billet export prices The other alternative is that additional supply is developed.

had reached $820/tonne fob, as mills pushed up offers to

In the short term, the only additional supply is Sidenor in

ever higher levels. However, this takes margins to record

Bulgaria and re-rollers in the GCC. That is not likely to be

levels. Taking the conversion from CIS fob A3 prices to

sufficient. However, the surging international prices could

Turkish billet export prices, and the margin is now $320/

result in the higher availability of Chinese material, where

tonne. This compares to less than $230/tonne over the

spare capacity exists – see Asian section, particularly if the

whole of 2007 and the average of $170/tonne in 2006.

Chinese economy slows in the second half of the year.

With the billet to rebar margins at $100/tonne or so – see below – Turkish producers are continuing to roll finished

Our short-term outlook therefore is that prices will continue

product rather than sell billet (the re-rolling cost is around

to rise through Q2. However, rising stocks, a seasonal

$60/tonne), which is keeping the supply of Turkish billet

drop-off in demand and rising supply out of China could

low.

result in easier market conditions in the second half of the

18

GFMS METALS CONSULTING M E TA L S C O N S U LT I N G

EMERGING MARKETS STEEL FUTURES BRIEFING

Turkish billet to rebar margin ($/tonne fob)

120

Margin between CIS A3 export and Turkish billet export price ($/tonne)

350

100

300

Record margin over scrap suggests that either scrap goes up further or billet comes down

250

80

200

60

150 40

100 20

50 0

0

Jan Jun Nov Apr Sep Feb Jul Dec May Oct Mar Aug Jan 03 03 03 04 04 05 05 05 06 06 07 07 08

Jan Jun Nov Apr Sep Feb Jul Dec May Oct Mar Aug Jan 03 03 03 04 04 05 05 05 06 06 07 07 08 Source: GFMS-MC

Source: GFMS-MC

In our view, this margin is unsustainably high. The previous

on a seasonal basis later in the year, and we do expect

peak was $280/tonne in Q2 of last year, and this faded

rising inflation rates in some emerging economies to result

back down to less than $200/tonne by Q3.

in efforts to reduce demand, but this will be marginal.

There are therefore two events that could determine future

Billet to rebar margins also high

pricing. Either billet prices come down in absolute terms or

Strong end-use demand has also kept the billet to rebar

scrap prices continue to go up. We believe that in the short

margin high. Turkish mills have been able to keep the

term, scrap prices will continue to rise. As buyers pay the

margin up around $80-100/tonne. This means that Gulf

higher final prices, mills will again be willing to pay higher

re-rollers have been active purchasers of billet to supply

input prices.

their own markets. The latest Turkish rebar offers for May deliveries are now $900/tonne fob, and we would expect

Scrap will continue to rise through Q2

them to run-up to $930/tonne fob over the next week or

A3 and HMS No1/2 prices rose to around $505-510/tonne

so.

cif Turkey in the second week of March – up around $50/ tonne in the week and $100/tonne since January. On the

Russian rebar market explodes

supply front, high production rates at EAFs within the CIS

Russian producer prices soared in March on strong export

and other net exporters such as central Europe, due to

pricing and strong demand for traders as they seek to

buoyant construction steel demand and pricing, will limit

secure material for the peak construction season, and

scrap availability out of the CIS. Furthermore, slowing

bolster inventories that were run down over the winter.

industrial production in North America, Europe and Japan will reduce prompt scrap arisings. These are the core

Urals producers increased March prices to around $735

suppliers of scrap to the international market.

ex-VAT on an ex-works basis for 12mm material – up around $120/tonne on the month. Strong demand is also

Scrap demand is being driven by high levels of steel output

attracting imports, running at 80,000 tpm over January

going to construction markets in the Middle East, central

and February. Belarus, Moldova and Kriviy Rih all increased

Europe, North Africa, the CIS and most other emerging

prices to around $760/tonne daf, while southern Russian

markets. While the economies of the USA, western Europe

traders were also in the market for Turkish material

and Japan struggle in terms of construction demand,

– further increasing prices. With export prices rising to

commodity prices (oil, metals and agricultural) remain

as high as $900/tonne in March, we would expect mills

high. Therefore emerging market construction demand will

to increase prices by up to $100/tonne for the domestic

remain high as revenues continue to grow. Until there is a

market.

transmission effect from the slowdown in mature markets, we see no reduction in the upward pressure on scrap

Wire rod prices have been a little slower to rise. Severstal

prices.

is offering 5.5mm material at $700/tonne ex-works for the domestic market. However, there are no spot

In the medium term, there may be some downward

export volumes for Russian wire rod, with only Ukrainian

pressure if finished product stocks build and demand slows

available. We understand that Kriviy Rih has reduced

GFMS METALS CONSULTING M E TA L S C O N S U LT I N G

19

EMERGING MARKETS STEEL FUTURES BRIEFING since then, and Brazilian billet availability is now limited.

UAE rebar imports* (000 tonnes)

500

However, with low Turkish availability (Turkey is now a net importer of billet) and the removal of Chinese supply,

450

the CIS is the only large-scale provider of billet to the

400 350

international market, and has been able to increase prices 2007 monthly average

too almost on a daily basis.

300 200

GCC mills keep prices low compared to regional competitors

150

Hadeed has always been willing to keep prices low to gain

100

market share and is selling its rebar for as low as $780/

250

tonne delivered in March – probably the lowest prices in

50

the region. On the other hand, private sector producers

0 Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct 05 05 05 05 06 06 06 06 07 07 07 07 Source: ISSB, GFMS-MC

This excludes imports from GC C suppliers, Iran & Egypt

Al-Tuwairqi (ATG) and Al-Rajhi raised prices to around $820-840/tonne ex-works early in March, and will probably increase them again in mid-month. ATG for example was at SAR3,130/tonne ($827.50) for March – up from SAR2,900/ tonne in February. With ATG adding 1.35m tpy of new

its allocations this month as it is sending more to South

rolling capacity in the near term, it remains dependent on

Africa, but it started the month at the most reasonable

imports of billet for some of its raw material so is under

price level of $800/tonne fob, while Moldova was pushing

pressure to increase prices.

for $820/tonne fob. Both subsequently raised by $20/tonne at least. For May shipments, Kriviy Rih is now offering at

New 500,000 tpy rebar producer Al Yamamah is expected

$830/tonne fob for rebar.

on-stream later this year and as it will be buying billet on the international market, it may struggle to compete

Anatomy of the CIS billet export price surge

with its integrated rivals, particularly as that will mean a

In the first week of March, CIS mills came to the market

combined additional 2m tpy of supply on the Saudi market

with offers of April production billet. With prices rising

for rebar. With far less competition on the domestic wire

fast, only a portion of April sales were initially offered

rod market, Hadeed is selling wire rod for a minimum of

in the region of $725/tonne fob Black Sea, and buyers

$880/tonne into the domestic market.

quickly snapped this up. By the end of the week, the mills increased offers to around $750/tonne fob, and the

Qasco kept rebar prices low as well as it raised its domestic

majority of mills (Istil, Belarus Steel and most Metinvest)

price to $822/tonne in March compared to $795/tonne

sold at that level. By the second week of March, any mill

in February. This includes delivery to customers in Qatar

with availability had begun to ask for $770-780/tonne fob

or the UAE. However, it raised again from 15th March to

at least (including Russian Rostov and Volga mills), and

$855/tonne delivered.

we understand that some sales have been completed as high as $820/tonne fob. All of these were for Black Sea

ESI in Abu Dhabi increased March sales to $875/tonne on

sales, as although there had been some ice melting in the

an ex-works basis, while Al-Nasser increased its prices

Caspian and Volga canal, these routes were not fully open

for rebar in mid-March to $855/tonne. Wire rod prices are

as of mid-March.

slightly higher than rebar prices. Qasco Dubai is selling for $890/tonne with ESI at $880/tonne ex-works. Rak

We note one mill that is increasing its billet export

Steel in the UAE has also tightened the billet market. It is

availability – Casting of Kazakhstan, as the very weak

now running close to full capacity of 40,000 tpm, buying

Kazakh construction market is resulting in a sharp fall

imported billet.

in rebar demand, with output dropping to just 3,000 tpm since the beginning of the year. As a result, it has

With rebar imports into the region now at around $950/

increased its production and exports of billet, primarily

tonne cif for May deliveries, we expect that producers will

selling to Iran.

take advantage and raise prices again for April deliveries. Historically, GCC mills have priced higher than imports,

With strong demand for billet, Middle Eastern buyers

relying on shorter lead times and some freight advantages

turned to some alternative sources. Significant volumes of

to secure higher prices from the fabricators that are the

Brazilian billet have been booked in the last few months

main buyers. With such strong demand and limited market

with a Saudi buyer for example securing an order in late

inventory, we would expect them therefore to push prices

February for $770/tonne cif, although prices have risen

to higher than import levels by the end of the month. The

20

GFMS METALS CONSULTING M E TA L S C O N S U LT I N G

EMERGING MARKETS STEEL FUTURES BRIEFING CIS & Turkey long product prices ($/tonne)

Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09

CIS ferrous scrap (1) 480 520 560 540 520 500 520 480 450 420 410 410 430

yoy % CIS billet yoy % CIS rebar yoy % CIS wire rod yoy % Turkey billet yoy % Turkey rebar yoy % Turkey wire yoy % export (2) change export (3) change export (3) change rod export (3) change change export (2) change export (2) change 45% 780 54% 830 40% 820 41% 800 45% 900 50% 850 44% 63% 840 56% 930 55% 940 59% 860 43% 950 47% 960 52% 87% 850 65% 930 56% 940 66% 870 50% 960 57% 960 60% 83% 820 66% 890 60% 900 64% 850 49% 940 57% 950 57% 76% 780 60% 850 55% 860 56% 810 59% 890 52% 900 51% 61% 750 58% 820 50% 830 50% 800 57% 880 56% 890 53% 60% 750 49% 810 47% 820 47% 800 55% 870 54% 880 52% 45% 730 47% 790 47% 800 43% 780 51% 860 54% 870 50% 41% 710 43% 770 45% 780 41% 740 45% 820 44% 830 44% 24% 690 30% 750 31% 760 33% 710 25% 790 20% 800 17% 8% 680 9% 740 10% 750 26% 700 6% 780 7% 790 9% (4%) 680 6% 740 6% 750 5% 700 0% 770 3% 780 1% (10%) 700 (10%) 760 -8% 770 -6% 720 (10%) 790 (12%) 800 (6%)

2003 ave. 142 227 262 262 248 2004 ave. 213 50% 351 55% 414 58% 431 65% 367 2005 ave. 216 2% 323 (8%) 384 (7%) 399 (8%) 350 2006 ave. 232 8% 356 10% 427 11% 431 8% 403 2007 ave. 306 32% 492 38% 549 28% 548 27% 530 2008 ave. 483 58% 747 52% 812 48% 813 48% 782 (1) (2) (3) A3 fob Black Sea fob Black Sea fob Turkey All prices are an average of a range of prices that are present in the market, and exclude grade and finishing extras Source: GFMS-MC

48% (4%) 15% 31% 47%

278 442 411 487 589 862

282 455 418 480 590 865

59% (7%) 18% 21% 46%

61% (8%) 15% 23% 47%

5% import tax was abolished as prices have risen, but with

Syria and Jordan also active

the vast majority of cut and bend facilities not paying it,

The start of the construction season in these two countries

and service centres having a quota, as well as duty-free

is also contributing to the tight market. Jordan Steel was

access for GCC and Egyptian material, we believe that this

offering at $930/tonne ex-works in early March, but is

will not have a major impact.

likely to increase that following the uptick in billet prices that are now over $800/tonne cif. The private-sector Syrian

Strong Egyptian demand

mills are also completely dependent on imported Ukrainian

Contributing to the tightness in regional bar markets has

billet. At the beginning of March, domestic rebar was being

been the withdrawal of regular suppliers to the market

sold at around $870-900/tonne ex-works, but this will rise

such as Egypt, which have preferred to supply their own

to around $930/tonne by the end of the month. The Syrian

domestic market growth. Ezz raised its domestic rebar

mills are also actively exporting to Lebanon, Jordan and

price by around $70/tonne to EGP4,330 (ex-VAT) or

Kuwait at similar prices. The primary exporters to Syria,

$803/tonne. Egyptian exports in 2007 were around 10% of

Lebanon and Jordan are Ukrainian. With limited allocations

domestic output of 4m tonnes, but rising domestic demand

from Kriviy Rih, buyers have little option but to source

means that there are only limited export volumes currently

locally, although Makeevka is selling wire rod to the region.

being sold. There are a few offers we understand at around

Iran contributes to the tightness

$875/tonne fob.

In Iran, the construction season typically commences in full fashion after the Iranian New Year (3rd week of March). As

CIS long product export prices ($/tonne fob Black Sea)

1000 900

Ferrous scrap

800

Billet

900 Billet 800

Rebar

700

Turkish long product export prices ($/tonne fob)

1000

Rebar Wire rod

700

600

600

500

500

400 300

Forecast

400 Forecast

300

200 100

200 Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar 06 06 06 06 07 07 07 07 08 08 08 08 09

Source: GFMS-MC

Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar 06 06 06 06 07 07 07 07 08 08 08 08 09 Source: GFMS-MC

GFMS METALS CONSULTING M E TA L S C O N S U LT I N G

21

EMERGING MARKETS STEEL FUTURES BRIEFING such, traders and stockists were active in buying import finished products over the last two weeks, but as prices have risen to above $900/tonne cif, they have stopped buying. Domestically, ex-works prices of producers such as Yazd, Khorasan and Azerbaijan Steel were up to $870/ tonne at the end of February. This compared to $810-820/ tonne from state-controlled Insig and Esfahan. However, as the private sector is largely dependent on imported billet, prices will have to rise further later in the month in order to retain a margin, and we expect import buying of long products to resume at that point. According to Iranian import statistics, billet imports over March 2007-January 2008 were 3.11m tonnes compared to 2.07m tonnes for the same prior year period.

Latin American prices surge In Venezuela, Sidor increased domestic rebar prices to $800/tonne from $740/tonne in February. Buyers have little option as supply has been reduced due to strike interruptions, while it is estimated that government buyers (that have preferential access and prices to material) have been taking up to 50% of Sidor output in recent months. Supply has been further restricted by the closure for two months of Sidetur’s Puerto Ordaz billet facility. The company is usually billet-long, but the reduction in output will leave it billet-short, which will probably result in lower finished production levels. In Argentina, domestic rebar prices have also pushed past $800/tonne. Demand remains strong and the shutdown of the ArcelorMittal Acindar facility in mid-February that produces around 1m tpy of long products has pushed out lead times at other mills and resulted in rising import orders. With import prices expected to rise further, we believe that prices will continue to rise. In Chile, domestic demand also continues to rise – domestic sales of rebar in January were up more than 20% year-on-year.

22

GFMS METALS CONSULTING M E TA L S C O N S U LT I N G

METALS CONSULTING

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650

895

1,250

All Regions

765

1,070

1,485

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