RESEARCH: Key takeaways from the latest Steel Market Tracker

Price uptrend stumbles, but expected to resume

• As we expected, Chinese export and domestic steel prices moved upward in June, settling within the 2% range of our forecasts. Rebar prices trended downward in the second half of the month while heavy rains and floods in parts of the country meant that some construction sites had to reduce their working hours, affecting demand.
  This has resulted in a rise in rebar inventories, first among producers and by the end of the month at warehouses, weighing on the price level.
  We believe that rebar prices might slide further downward in July, but the uptrend should resume later in the year, when demand from the residential construction sector and government infrastructure investment programmes should provide support to the long steel sector through 2020.
  HRC prices in Eastern China rose by 5.7% month on month, returning to being set at a premium to rebar thanks to consistent demand from the manufacturing sector. We have downwardly revised our export HRC price forecasts for the near months amid a slowdown in the Southeast Asian market, but expect that prices will continue to rise, with manufacturing demand in China continuing to grow.

• European steel prices declined in June, with 3.6% and 3.2% falls in HRC and rebar respectively. At the end of June, a number of European mills announced coil price increases, which began to be accepted in the spot market, confirming our view that June would represent the floor level for regional prices.
  A steady increase in manufacturing activity in the region and restarts at automotive plants should support European flat steel prices in the second half of 2020, while competition from imports should decrease amid a tightening of import safeguard measures.

• For the United States, we have downwardly revised our forecasts after sheet prices underperformed our expectations as June progressed. The return of idled steel production capacity has outpaced the revival of demand from end-users, prompting renewed pressure on prices.
  Scrap price declines were also expected in the near term with increased flows of both prime and obsolete scrap, removing cost-push pricing support for flat steel products.
  Our view on the rebar price trend remains unchanged, because we expect to see prices reach a bottom in July and to start moving upward after that, supported by a slowly improving construction sector. Long steel demand should also be helped by federal infrastructure investment plans.

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