If February had lasted three weeks instead of four, then upon its completion, most manufacturers of steel products in different regions of the world could consider the month a success. Compared to its starting value of flat products increased by $20-30 per ton and there was reason to continue this growth with the onset of spring. However, the increase was an illusion that existed only on paper. In the last days of February quotes for steel products instead of the expected growth everywhere went down.
Unmet expectations
Continued growth of prices for steel products in February was waiting for almost everything. And, for that reason was. The market situation seemed to be quite favorable prices.
First, positive changes were noted in the General economic environment. At the end of last year began a recovery in housing construction in the United States. According to analysts, this meant that after a few months the upgrade will be extended to other sectors of the construction industry. In Europe increased the volume of orders in industry slightly decreased and unemployment has slightly improved situation in the financial sector.
Finally, great hopes were pinned on the countries of East Asia. Economic growth in China this year is expected to increase to 8.2 percent from 7.8 percent. Immediately after the New year on the Chinese calendar in the country had to start new large-scale public investment programmes to stimulate the economy. Moreover, similar plans, for example the Chinese, developed by the Japanese government.
Secondly, his role was to play the seasonal factor. Anyway, spring is the revival in the construction sector in all countries of the Northern hemisphere. The second quarter in the global steel market – traditionally the most "hot" period, usually accompanied by rising prices for steel products. Most distributors and end users entered into in 2013 with minimal stocks and, as expected, had sooner or later to start their replenishment.
Third, in favor of higher quotations for hire operated commodity factor. Prices for iron ore remained high throughout February. Chinese steel companies, faced with the reduction of domestic extraction of raw materials because of the record cold snap over the last three decades, actively bought up imported raw materials, planning to cover all costs during the spring rise. Due to the flooding in Australia is a bit added to the price of coking coal. Scrap prices dipped slightly in early February, but went up again in the second half of the month.
Finally, fourth, the steel company was in need of a promotion. The decline in the second half of last year had the most devastating impact on their profits. In particular, according to the Chinese steel Association CISA, leading steel company of the country ended last year almost to zero. Arcelor Mittal at the end of 2012 received a $3.7 billion loss. Serious losses due to write-off the value of assets suffered by the German Thyssen Krupp, has worsened the financial situation of the vast majority of other metallurgical companies in all regions of the world.
Due to these reasons manufacturers began in February increased the price of their products, primarily flat-rolled products. In the beginning of the third decade of the month quotes in East Asia, CIS, the Middle East exceeded the level of late January at $20-30 per ton, and in March, anticipated new growth of $20-40 for European companies who were in a more difficult position because of the weakness of the real sector of the economy, planned for March price increase of at least 20 euros per ton To the rise of prices has started, Turkish producers of long products, to compensate for a rise in price of scrap metal.
The result has been disappointing – primarily in China and Eastern Asia. Metallurgical company, raised quotes after the holidays, were forced again to lower them. Moreover, by the end of February prices actually returned to the same level where they were in the beginning of the month.
Did not happen and the expected rise in the market of long products. Buyers in the Middle East and Southeast Asia were willing to buy the products they offer, but at the same price. Despite all efforts of vendors quotations for Turkish rebar has not exceeded, by and large, at $610 per ton FOB, while Chinese wire rod in the last days of the month were sold for more than $590 per ton FOB. This may negate the rise in price of scrap metal, which many market participants had expected at the beginning of March.
Do not expect easy victories
The main problem of the global steel market was, perhaps, that the price growth in January-February was mainly on the basis of favorable expectations. Real demand in the first two months of the current year were generally relatively weak. Despite a number of favorable macroeconomic indicators real sector almost never see much change for the better. The situation remained uncertain and fragile, so consumers continued to wait-and-see policy and, by the way, are still. But no concrete deals to vendors forced to lower its prices, that previously had mostly virtual.
In Asia the problem is compounded by oversupply. The Chinese company, according to CISA, in the first two decade of February was produced, on average, about 2 million tons of steel a day, which is approximately 4.5% higher than the previous month. Many vendors held back their produce in expectation of a rise at the end of February. As a result, the market was "oversold" in the first days after the holiday period, and the quotations, failing to properly rise, rolled down.
For Turkish companies the main difficulty was the weakness of the construction sector throughout the region. In Turkey, the demand for structural steel in February was moderate, due to periodic cold snaps, however, exports fared much worse. Last year, Turkish steelmakers were able to increase the volume of external supplies of rebar by 20.2% to 8.3 million tonnes, but to even come close to this result in the current year, they are unlikely. Egypt closed its market to import duties, and the need to hire in this country has declined due to the difficult political situation. A Lebanese company in January had to stock up on Chinese and Ukrainian production. The UAE has tightened customs regime starting position to charge a 5% fee on all parties of Turkish rebar. Reserves growth in the smaller countries of the Arabian Peninsula, in Africa, Latin America and the United States had already been exhausted in the past year. It turns out that the main sales have on Saudi Arabia and Iraq, where the local traders are well learned to bring down prices.
Failed to achieve the desired growth and Turkish producers of flat rolled. The demand was not as significant as expected metallurgists. As a result, hopes on the rise in the cost of hot-rolled coils up to $640 per ton EXW and more had to be postponed indefinitely. Accordingly, the broke and the plans of the Russian metallurgists to increase the value of the products up to more than $600 per ton FOB.
In the European market the prices in the second half of February let, it would seem quite random factor – the resumption of sales of steel products produced in July-December last year, the Italian steelmaker Ilva, owned by the company Riva. However, the injunction on sales of rolled products, which have accumulated in the warehouses of about 1.7-1.8 million tons, would be removed anyway sooner or later. It turned out in mid-February. The result of the giveaway, organized by Riva, collapsed prices for flat products in Italy and has made it very difficult their increase in other countries of Europe.
Of course, it is too early to speak about occurrence of a new recession. Steel company, at least, are willing to accept failure with the rise of prices, but I don't see any reason for them to decrease in the foreseeable future. Anyway, but ahead the period of seasonal recovery in the global economy and steel market in particular. Apparently, in March, the producers will make another attempt to increase prices, the success of which will depend, primarily, from the real economic state of China, USA, Europe and East Asian countries. However, while the most likely option moderate growth – improving, but not as significant as we would like to metallurgists.
In a challenging environment in the steel company appealed to the government for assistance. In recent months, the governments of France and Belgium put pressure on Arcelor Mittal, demanding that corporations change decisions on the closure of some facilities in these countries. The Slovak government conducts ongoing negotiations with US Steel, assuring her not to sell located in this country, the steel plant. The European Commission by June of the current year promises to prepare a Plan of action aimed at providing support for the regional steel industry. It is possible that it will contain measures to limit steel imports. China Association CISA has already sounded the alarm, pointing to new anti-dumping processes were initiated against Chinese steel products in the United States, the European Union and Australia. It is likely that soon we will see increased protectionist sentiment in the global steel market.
Perhaps, in themselves and metallurgical company is unlikely to overcome the crisis in which they are located. The demand for their products depends entirely on the state of the real sector – industry and construction, whereas the anti-crisis measures of the governments, for the most part, only affects the financial sector. In General, as shown by the first two months of 2013, the global steel industry is waiting for another difficult year.
 
Victor Tarnavsky
Rusmet.ru