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A Deeper Dive into May 2016 Steel Industry Indicators

PART:
1 2 3 4 5 6 7 8 9 10 11
Part 8
A Deeper Dive into May 2016 Steel Industry Indicators PART 8 OF 11

Chinese Steel Prices Have Fallen: Could US Steel Prices Follow?

Chinese steel prices

One of the factors driving US (DIA) and global steel prices this year is the trend in Chinese steel prices. Chinese steel prices rose steeply in March and early April. However, we’ve seen a correction in them in the last few weeks.

Chinese Steel Prices Have Fallen: Could US Steel Prices Follow?

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Prices have fallen

Hot rolled coil (or HRC) prices in China have fallen more than 17% from their April peak, as you can see in the graph above. During ArcelorMittal’s (MT) 1Q16 earnings conference call, chairman and chief executive officer Lakshmi Mittal expressed apprehension over the steep rise in Chinese steel prices.

Mittal acknowledged that the outlook for Chinese steel demand has improved, but he sounded apprehensive on the steep rise in Chinese steel prices. Mittal said that the “overshooting of the price should not be taken as sustainable.” He added that there could be some correction in Chinese steel prices.

Impact on US steelmakers

Chinese steel prices affect steel prices all over the world. China is the biggest steel exporter. Last year, it exported 112 million metric tons of steel products. That’s more than what Japan, the second-largest steel producer, produced in the entire year. Low-priced Chinese steel imports have led to lower steel prices around the globe, and the United States is no exception. Since the landed cost of Chinese steel imports could fall due to the correction in Chinese steel prices, steel producers elsewhere could find it difficult to raise their prices.

Higher Chinese and global steel prices helped US steelmakers such as United States Steel (X), Nucor (NUE), and Commercial Metals (CMC) raise their base selling prices. But since the rally in Chinese steel prices has halted, US steel prices could plateau now and possibly correct later this year.

Higher steel prices have encouraged steel producers to produce more steel. This could add to the steel glut in international markets. In the next part of the series, we’ll analyze the recent trend in global steel production.

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