Asian steelmakers to hike prices in Q1 2011 export deals

TEX reported that there are prospects that steelmakers in Japan, South Korea, Taiwan and China will execute price increases in their export deals of various steel products for shipments to Asian destinations in the January to March 2011 quarter. They are expected to start separate negotiations from late December toward steel requirements among the customers concerned after lunar New Year holidays in 2011. There are forecasts that the Asian environment for steel transactions will be headed for a fast recovery, leading to expectations for a major advance in steel prices as a whole.
A steep fall in Asian steel prices in the latter half of 2010 is thought to have followed much larger supply volumes than actual demand. In the background, steelmakers in South Korea and China have reinforced existing production capacities or have built new capacities one after another at their works.
In South Korea, Hyundai Steel Co has turned itself from an electric steelmaker into an integrated steelmaker, and Dongbu Steel Co from a steel re roller into an electric steelmaker. Meanwhile, Dongkuk Steel Mill Co and POSCO have reinforced their production facilities. In China, new production facilities have gone on stream in rapid succession. As a result, it is understood that Asian supply capacities of ordinary steel products as a whole have increased by 40 million tonnes per annum.
Still, consumption of steel products in Asia indicates growth this year. Demand growth this year is estimated at 65 million tonnes as compared with last year, as steel demand is expanding, mainly in emerging economies. As a result, if follows that a glut of steel products is believed to have stopped somewhere in the first half of this year, with the glut cleared away for the latter half. As a result, it is likely that a balanced supply demand situation for steel products will emerge in Asia early next year since the existing production facilities in East Asia are unlikely to come under any new large scale buildup until 2013.
At present, inventory adjustments of steel products are under way in Japan and elsewhere in Asia. There are even realization sales to dispose of products in stock in some nations where December represents the month of account settlements whereby the reduction of inventory is in effect. Besides, there are moves to pull down inventory before the lunar New Year holidays in 2011.
With inventory on track to diminish, there are forecasts that various customers will take action all together to purchase steel products to cover requirements after the lunar New Year holidays next year.
Meanwhile, steelmakers in various Asian nations are bound to face an advance again in what they pay for raw materials in the January-March quarter of next year even though they have yet to get an adequate pass along to meet a surge in raw materials prices since April this year. Most of China's steelmakers are said to have already fallen in the red. Even South Korea's PPOSCO faces a considerable fall in its profits. Therefore, steelmakers in various Asian nations including Japan find themselves in an environment that requires price increases in what they sell toward assured profits. In emerging economies, depreciations of their currencies are lending themselves to steel exports out of local steel mills, but the depreciations count against purchases of raw materials, a heavier cost burden than Japanese imports of raw materials in an appreciating yen. Accordingly, the ensuing price increases of steel products are indispensable to the steelmakers concerned.
As to China's steel exports, they are unlikely to increase in the first half of next year as there are signs of the central government putting restrictions on increased production from domestic steel mills. It is likely that Chinese steelmakers will face a reduction of their export capacity if domestic demand for steel products perks up, calling for increased supplies. Until now, Chinese steel exports have been viewed as a bad factor in Asian steel market conditions.

Such favorable factors are cropping up one after another, in which Asian steel market conditions look set to show a distinct change. In this connection, there are increased inquiries to various East Asian nations from the Middle East where transaction prices of HR coils have already advanced by USD 20 to USD 30 per tonne.
Under the existing circumstances, it is about time for various East Asian steelmakers to take a solid stance to nail down price increases in the steel exports they negotiate anew.
On their part, Japanese integrated steelmakers are contemplating seeking a price increase of around USD 100 per tonne in negotiations on their export deals of various steel products for shipments to Asian destinations in the January to March 2011 quarter. As far as HR coils go, the Japanese steelmakers are expected to struggle again for a price level of USD 700 per tonne FOB.

Dec 13, 2010 09:32
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