Galvanized Steel Market Outlook for Q4 2008

The market situation of coated steel in Q4 2008

After reaching high levels in the first half year, global steel prices seem to be undergoing a correction and demand has slowed down beginning in July, especially for galvanized steel. In the first half, galvanized steel demand was strong in Asia, North America, Eastern Europe and the Middle East; however, after prices reached an all time high in July, demand appears to be on a downward trend. However, whether the weak market situation will only be in the short term or long term is a question we would like to discuss.

In North America, the business recession in the automobile and construction sectors has caused weak business operations in US steel mills; plus, most buyers are in no hurry to make new purchases, so steel mills cannot ensure their orders. Since the galvanized steel price has dropped, most end users prefer a wait-and-see attitude regarding the future market situation. Current HGI based price from US domestic steel mills is about US$1,279/ton, but buyers said the true offer price is actually lower. Not only domestic GI sources, but also import GI sources are facing the challenge. Most foreign steel mills have tried to reduce the GI price in order to compete with US domestic sources, but their plans seem to be unworkable. It suggests that buyers will have more room to negotiate prices with mills in the following few weeks.

In the Middle East, especially in Iran, hot-dip galvanized steel price started to fall in mid July. A few years ago, Iran’s GI source used to depend on imports, but now several of Iran’s steel mills can produce GI steel products, including: Semnan Rolling and Tube with 200,000 tons annual capacity in GI; Fajre Sepahan with 130,000 tons annual capacity; Seven Diamond Industries with 100,000 tons annual capacity; and Mobarakeh Steel mills with 300,000 tons annual capacity. Now, the 0.5 mm to 1.0 mm GI dealing price from Iran distributors is about US$1,266~1,555/ton, around US$85~157/ton lower than in mid July. Iran’s local distributors expect the GI price to keep dropping in line with decreasing global steel prices, following with the price of fuel.

Slow economic conditions in the US, rising raw material cost and high stock inventory for most manufacturers, have caused the GI steel market to slow down in China’s domestic market. Also, the EU’s antidumping case on China’s GI products also caused China’s GI source to experience difficulty in exporting.

In Europe, due to poor buying during the summer vacation and weakness in southern Europe’s construction industries, HGI prices are not performing well. The HGI price in southern Europe is now about €800~840/ton.

It is believed that softening GI prices will represent temporary price adjustments. Because raw material cost has still stayed at high levels and the rising US dollar, the EU mills’ offer has become more competitive; most EU mills plan to keep the market firm by raising their offer price. Besides, most steel mills will cut production to stabilize prices; Taiwan’s China Steel Corp. will slash hot roll steel production about 5~10 percent; several Chinese and Korean blast furnace steel mills have started to reduce production as well. On the other hand, the new contract price of coal has risen by 200 percent and that of iron ore by 65 percent, showing that the steel price has no reason to drop in the long term. Finally, on the demand side, global steel consumption growth rate in new developing countries is expected to exceed 10 percent from 2007 to 2009, and global steel production is lower than demand. In addition, the rebar and scrap prices have rebounded in China, and Turkey’s scrap buyers may restart their scrap purchasing in September. For all of the above reasons, the future market will remain in a positive position.