The recent steel price recovery is now under threat. The MEPS world all products composite steel price declined, in July, by 0.9 percent – the first monthly fall this year.

While mill price hikes in North America were arguably the initial driver of the global price revival at the beginning of the year, the region’s weakness is now likely to be the precursor for world price falls in the second half of 2016.

Amid a subdued demand outlook, North American selling prices have been artificially raised by supply-side measures. Relatively low domestic capacity utilisation rates, of below 80 percent, and the introduction of trade barriers propped up domestic transaction values.

One US buyer labelled the recent price hikes as ‘supply-side fiction’, arguing that it was in the interest of only local producers to maintain steel selling figures at elevated levels and that domestic mills, with the assistance of trade petitions, were taking these actions at the expense of consumer choice.

MEPS has long predicted that further supply-side price hikes, in the US, could prove fragile. Regional selling values fell marginally, this month, as order volumes slowed ahead of the summer vacation.

From MEPS research, in July, the consensus view from US steel industry participants is that steel prices are likely to stabilise at best, in the near term. Seasonally slower demand and cautious service centre buying in the fourth trimester, due to stock and cash flow considerations, are likely to put further negative pressure on domestic selling values.

Another buyer noted that he expects US steel manufacturers to “play defense” by announcing a further list price increase, in September. It is likely that steel buyers would resist the initiative, at this stage. However, at worst, local producers would hope to prevent any price reductions, especially as US import volumes continue to be curbed by ongoing trade cases.

In addition, MEPS European selling values fell significantly, in US dollar terms, this month. Order intake slowed considerably, ahead of the approaching summer holiday period. Competitively-priced offers from Russia and China, in particular, also had a negative impact on regional selling figures.

China, which is responsible for over half of global crude steel production, will always have a major bearing on the trajectory of global steel prices. This month, the MEPS Asian average price rallied following growing talk of production cuts, especially in the Chinese region of Tangshan. However, at the time of publication, Asian regional prices were softening slightly, because of increased volatility in both the billet and futures markets, in China.

It is likely that global steel prices will continue to be on a downward trend for the second half of 2016. However, we believe that steel selling figures will remain significantly above the low levels recorded at the end of last year.

Source: MEPS