MAN OF STEEL: Batten down the hatches

Has the long-mooted downgrade in the steel market finally arrived? Signals are emerging that China’s appetite for steel products may not only have been satisfied, but that the commodity-hungry giant may have overeaten.

This column has warned about the accumulation of stock before.

Chinese producers (and probably others) are offering four-week delivery on products. When mills offer basically ex-stock – which is what four-week delivery is – it shows very clearly how much they need orders and that they are not very particular about where the steel goes.

I have my doubts that, after eight years of very high production and high domestic use, Chinese mills will be able to handle the competition from their peers as the market faces increasing oversupply.

In addition, they will now have to bargain over exports into areas where new duties are appearing.

India and Brazil have introduced levies on various products from China, including steel, and this tightens the export options even further.

A Hong Kong trader has an offer of commercial quality hot rolled coil (HRC) for October shipment (yes, October) at $590.00 cfr any Oriental port. That equates to $600/610 cfr Antwerp.

This compares with views expressed this week in Europe that prices were unchanged at €530-550 ($723-751) per tonne delivered for October, although new, lower offers have also been heard.

For example, a Slovakian mill has sold HRC to a German service centre for €505 per tonne exw, while a Hungarian mill is offering €505 exw or €520 delivered into the Benelux region.

You can already hear the Anti-Dumping Alarm ringing in the distance.

If – or rather when – the product floodgates open, we can expect billet to take the hit first and its prices to fall faster than those of other products, followed by bars and HRC.

Once these products have started to fall, it won’t be long before plate, cold rolled coil and hot-dipped and electro-galvanized move down as well.

Years after making and continuing agreements for a basic form of protection, US and EU steel producers now face the arrival of much higher volumes than agreed, and the obvious effect this will have on domestic prices that have been weakening throughout the summer.

These extra tonnages will attract anti-dumping duties, but this will not curtail the need for the Chinese mills to keep producing to meet their own goals. This will lead to an all-out price-cutting struggle between them to secure whatever tonnage they can find, wherever it is.

We will see the price decline start to accelerate and, no matter what you may read or hear elsewhere, there will be no billet or bar recovery in the Middle East-North Africa region, or anywhere else, once the Chinese offers start rolling in.