The Advance/Decliner Index is our effort to quantify the anecdotal price information we find in our every day reading about global steel price trends. We also are looking at relative prices in the U.S. versus abroad in our attempt to gauge international price pressure/opportunities heading our way.
Advance/Decliner Plummets in China; Picks Up in West.
Our Advance/Decliner Index rose nominally overall last week, for the first time in a month, from 28.1% to 28.6%. While the index overall was fairly stable, there was a dichotomy in the trend, with our China index hitting zero in the week - meaning all Chinese price changes were cuts - for the first time since early October.
Our non-China index actually rose from 29.2% to 36.4%, for the first increase since early April. Chinese steel giant Baosteel surprised the market with July price cuts of 9% to 13%, which were greater than expected. Bao typically lags the spot market trend, and this is the company's first price cut of the cycle, so it should be unsurprising that the company needs to catch up to the market.
Relative Strength in East Asia and Sheet.
East Asia led the price increases again this week with three, followed by the CIS and Japan with two increases apiece, and the U.S. with a single increase.
China again led the price cuts with six, followed by East Asia and India with three cuts each. Mexico and Turkey each posted two decreases, while Egypt, the UAE, the U.K. and the U.S. each logged a single decrease.
Coated and cold-rolled coil (CRC) led the price increases with two each during the week, followed by energy pipe, hot-rolled coil (HRC), plate and rebar which all posted a single increase. Rebar led the price cuts with six for the week, followed by HRC with five, and CRC with three decreases. Coated posted two decreases, while beams, merchant bar, non-energy pipe, and plate all posted a single cut this week.
Domestic Prices Stronger Than Global.
Domestic steel prices continue to catch up only slightly relative to global levels, despite increasing weakness in other regions.
While reported figures indicate price increases for domestic HRC, up 2.6% for May, these numbers are short of the 7.3% increase in Japan, but stronger than the 0.3% increase in Europe and 4.3% decline in China in May.
Domestic plate prices were up 4.6% for May, slightly better than the 3.3% increase from Europe and the 0.5% decline in Chinese plate. Beam prices continue to rise in Japan, up 8.2% for the month, against flat prices in the U.S., and declines of 1.6% and 2.9% in China and Europe, respectively. Rebar prices in the U.S. are down a nominal 0.5% for the month, against a 6.4% jump in Japan, a 3.2% dip in Europe, and a 5.2% decline in China.
Outlook: Global Prices Reacting to Chinese Weakness, Expect Declines to be Short-Lived.
Steel prices are declining now in part due to inventory liquidations, primarily in China, reacting to the risk of further declines in steel and raw materials prices. The West is increasingly concerned about a pickup in Chinese export quotes as the risk of peaking Chinese production turning to the export market as a safety relief valve.
We believe that the weakness will be short-lived and expect to see steel prices strengthening again in coming months in response to the reality of far higher costs for raw materials, particularly in China.
The rationale for higher pricing is profound; because China is now 60% of the global steel market, and is the region most hurt by global raw material price increases, China has created a "cost umbrella" for the rest of the world. China is able to pass through these cost increases into its highly protected market in the form of higher prices, and Chinese prices, the most-quoted in the world, have become "global reference".
Michelle Galanter Applebaum spent more than 20 years as a managing director at Salomon Brothers in New York and was the No. 1-rated steel analyst from 1988-2003, according to Institutional Investor magazine. In 2003, Ms. Applebaum formed Steel Market Intelligence, a 5-person Chicago-based equity research boutique providing advisory services to institutional investors. In addition to publishing 10-15 reports/week, Ms. Applebaum sponsors numerous CEO-level meetings for her investor clients during the year. She is regularly quoted on Bloomberg, Dow Jones, The New York Times and makes frequent appearances on CNBC and other news programs. Ms. Applebaum lives near Chicago with her husband, visiting children and 2 dogs.