China Steel Prices Pressure Index - TheStreet

Advance/Decliner Index Falls

. Our index declined for the first time in seven weeks, falling to 66% this week from 71% last week.

The pullback was entirely due to a retreat by our China index, which dropped from 100% to a surprising 64% due to five price cuts, all less than 2.7% (while the increases were as large as 8.6%).

We'd caution you from reading too much into a single-week change in the China part of the index, because steel prices in China trade on a near-daily basis and the volatility is massive. (In fact, we suspect traders in the region are creating artificial volatility.)

Excluding China, our index increased nominally to 67% from 66% last week as the recent uptick in global prices persisted.

China Still Leads Price Increases

. Even though China pressured the advance/decliner index, China also recorded nine price increases this week. The U.S., Korea and Italy each posted three. Turkey, the U.K., Southern Europe, Egypt and Southeast Asia each had a single price hike.

China had five price cuts, while Turkey and India each had two, and Russia, the U.K., and Southern Europe each had one.

There were 10 price increases for flat-rolled products, five for rebar, two each for plate and beams, and one each for wire rod, pipe, merchant bar and billet.

Flat-rolled products and plate each posted four price decreases, while rebar, beams, pipe and wire rod each had one price cut.

Relative Domestic Prices Mainly Lower in December

The good news in the U.S. market is the remarkably low domestic prices vs. the rest of the world. Also, most products are near their lowest relative spreads in years.

This trend is clearly driven by a weaker economy in the U.S. than in other regions, particularly China. Rebar prices in the U.S. in December fell $33 per ton, or 7%, from November and are down relative to all other regions, where prices have risen. In fact, U.S. rebar prices are at roughly $438 per ton, lower than

both

China and Europe for the first time since 2004.

Because the U.S. is generally the world's largest importer, lower prices in the U.S. relative to other regions have never been sustainable for more than a month or two. Thus, it's likely that rebar prices in the U.S. will rise.

U.S. Plate prices have fallen recently and are down relative to China and Europe, where plate prices have risen.

Absolute HRC prices in the U.S. have declined so far in the month, and are down vs. all other regions, where prices have increased. In fact, they're are near record lows vs. Europe and Japan.

Domestic beam prices increased by $25 per ton, or 4.0%, in December. They're up relative to China, Japan and Europe, which have posted increases of 1.7%, 2.0%, and a decrease of 2.2%, respectively.

Outlook

: Global steel prices continue to pick up in many regions outside China, and we suspect that the Chinese will see rising prices in the coming weeks as well.

However, we remain concerned that Chinese mills will look to increase exports rather than cut production, as Beijing has already signaled a pickup in exports in the coming months.

We are hopeful that rising iron ore and scrap prices will keep the Chinese production/consumption balance in check and hold the line on exports.

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.