Favorable Steel Market Predicted
According to WorldSteel Dynamics, in the month of June, surprising developments have worked strongly in the favor of steel companies. As a result, a global steel sheet shortage, which WorldSteel Dynamics feels is a 75:25 probability in 2003, seems to be in the early stages of developing.
A feature always found in a shortage is a buyers' panic. In the United States, the shortfall of supply is so severe that some foreign steel from Tier III sources is being sold at prices not too far from domestic levels in some cases. Steel-buying contacts indicated that they can't afford to delay orders because the mills' backlogs are filling up so fast.
According to World Steel Dynamic, back in March, the steel export price "volcano" was not dead; it was only dormant. In Global Steel Alert #3, March 19, WorldSteel Dynamics forecasted that a global steel shortage, a price spike, or a "shortage," is a 2:1 possibility in 2003 if there is a synchronized global economic recovery, which would stimulate global steel demand.
Shortage conditions are now a small possibility in the
second half of 2002 if real steel demand were to rise by several percentage
points this year and steel mills globally don't overreact and too quickly
boost their output.
During his report to the ferrous division at the Bureau of International Recycling Convention in May, Robert Philips of the United States said that the United States steel production utilization rates had improved from a low of 63 percent to around 89 percent at the time of the meeting, prompting equally significant increases in scrap prices. Meanwhile, steel imports into the U.S. have fallen off in reaction to recently imposed tariffs.
The heavy melt scrap price had risen from $64 per ton in November last year to near $93- an increase of 37 percent. Pointing to signs of export scrap prices beginning to exceed those on the domestic front, Mr. Philip warned of the need for the major world powers "to address the currency variation imbalance- an issue affecting all goods, but certainly hitting the margins of US scrap operations."
The American Institute for International Steel (AIIS) Chairman Wilfried von Bulow issued the following comment on preliminary steel import data released by the Department of Commerce: "Imports of finished steel products continued to arrive at low levels in May 2002, based on preliminary reporting by the Census Bureau. In contrast, in the year-to-date period, imports of semifinished steel, used by the domestic steel industry, continue to run at nearly 40 percent higher than in 2001. May imports ordered from non-NAFTA countries were ordered in January and February 2002 when, despite improving prices and demand, the threat of protectionist action under the 201 case forced importers to retreat from the market until the March 201 decision was announced.
Current market conditions show clearly that the U.S. steel market is in shortage and suffering from non-competitive prices compared to international levels. The domestic industry's imports of semifinished steel, needed to fill rolling schedules and respond to strengthening customer demand and substantially higher prices, are not sufficient to keep up with the needs of steel consumers."
Several reports in early July stated that Honda Motor Co., Ltd. airlifted 200 tons of steel from Japan to supply its North American auto plants. Rising prices in North America and shrinking supplies were given as the reason that Honda bought the steel. The company said if supplies remain tight, it may bring up to 2,000 tons.
Steel market demand and supply trends are contained in the AIIS Survey of Steel Importers, which is updated on a monthly basis.
There is a prediction of a severe stainless steel shortage. During the stainless steel meeting at the Bureau of International Recycling in May, Stainless Steel and Special Alloys Committee Chairman Michel Wright said, "We are facing a severe scrap shortage (in stainless steel)."
A remarkable turnaround in the stainless steel scrap demand has happened in the world market. Mr. Wright of the United Kingdom said world consumer demand could rise by between three and five percent this year, but availability of purchased scrap was expected to fall by some 700,000 metric tons- around 13 percent. In West Europe, a drop of 300,000 tons or 15 percent to 1.5 million tons was anticipated. Supplies from East Europe could fall by 24 percent from 800,000 to 600,000 tons.
Mr. Wright explained causes of this dramatic situation. First, lower stainless production in the second half of last year had reduced availability of new production scrap. The second factor was price sensitivity- high nickel prices tracking high volumes of reclaimed scrap and lower nickel prices leading to reduced volumes. Third was the reorganization of Russian exports through selected ports, initiated in February this year. Depending on how long this took, a predicted shortfall of 200,000 tons might widen and even double.
Barry Hunter, former chairman of the stainless steel committee, and now president of BIR, reported that in the United States, after "a decent increase in consumer buying activity" during April, May had seen "decent turned into dramatic."
Exports flowing at around 40,000 tons a month, lower domestic demand as a result of a slowing economy, plus the influences of rapidly rising LME nickel pricing and continued strength in the high temperature alloy business, had combined to bring U.S. consumers "roaring back into the buying market."
A shift away from exporting, Mr. Hunter said, could become significant, but so far the February figures (presented in May) showed 25 percent of U.S. stainless scrap shipments going to Europe. That is compared with below 10 percent for the whole of 2000, and was without any material going to the historically important Spanish market.
Mr. Hunter questioned the situation in the U.S. once North American Stainless (NAS) came on stream with 800,000 tons annual production capacity later this year. "Where would the scrap come from? Perhaps the U.S. would become an importer- as has happened with the carbon steel scrap. The roller-coaster effect that characterized the stainless business seemed to be increasingly challenging," said Mr. Hunter. He indicated the ride was nowhere near over.