RESEARCH: Improving demand outlooks in Europe, US prompt increases to our HRC price forecasts

• US hot-rolled coil (HRC) prices performed in line with our expectations in August, with US domestic HRC prices finding a floor in July as forecast before they rose in August. US HRC prices averaged $522 per tonne in August, which compares with our forecast price of $518 per tonne. Based on an improving demand outlook and rising scrap costs, we have upwardly revised our sheet price forecasts for September and October. We remain cautious for the final months of the year, however, reflecting both pandemic and political uncertainty, in addition to the traditional slowing of business activity prior to the holiday season.
• European HRC monthly averages settled close to our expectations for August, continuing the uptrend that started in July. Taking into account steadily improving demand, restricted local and foreign supply and strong raw materials prices, we upwardly revised our European flat steel price forecasts. We expect that the €500 per tonne HRC target in Northern Europe will be achieved in September or early October, leading to further hikes from local producers in the fourth quarter.
• Chinese domestic and export prices rose in August, with the steepest month-on-month increases in export HRC and CRC assessments, up by 8.5% and 7.8% respectively. Flat steel prices continued to perform stronger than long steel, with the Eastern China HRC assessment moving up by 4.6% from July’s level and rebar by 1.9%. The price uptrend in rebar prices has been moderated by high long steel stocks in the supply chain, and rebar inventories at producers and warehouses have been moving up after bottoming out in June. We expect strong construction demand to support rebar price increases in the coming months, leading to a steady decline in the price differential between domestic rebar and HRC prices. The outlook for the construction sector in China remains relatively positive and we expect new floor space starts will continue to rise on a year-on-year basis as recorded since May, while the government’s infrastructure investment plans will provide an additional source of long steel demand.
• Rising international long steel and scrap prices supported Turkish export rebar and billet prices, which settled in August within 1% of our forecasts. We expect further increases in September, followed by a seasonal price downtrend in the fourth quarter. Domestic demand in the country has been supported by the availability of cheap credit from state-run banks, leading to rising new house sales, while robust demand in Southeast Asia supported export sales of Turkish rebar producers.

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