Steel June 2017
Price Volatility to Recede

Chinese domestic rebar prices reach a five-year high in May as a result of stronger infrastructure spending. World steel demand is growing strongly, despite facing challenges. Furthermore, India’s imminent GST introduction to benefit steel producers, with a 5% rate on coal and iron ore.

Chinese rebar prices maintained their strength in May, rising to a five year high during the month on increased infrastructure spending. Asian rebar price averaged US$430/t for the month, up 1.0% from April and 17.8% year on year. Infrastructure spending growth, on a three-month moving average, is up 18.5% year on year, an eight-month high. Infrastructure spending growth has now increased for five consecutive months after reaching an almost five-year low in December 2016 at 11.4%.  Asian average HRC and CRC steel prices fell 0.9% and 1.2% in May to US$468/t and US$479/t, month on month, after falling sharply in March and April. AME forecasts that world steel prices will experience continuing volatility over the next few months, primarily following iron ore and metallurgical coal prices.

The iron ore price is expected to stabilise in May, after falling 13.5% in May, averaging US$61/t. The Metallurgical coal price has continued its sharp retreat from over US$300/t in mid-April as supply disruptions caused by Cyclone Debbie have now been resolved. Declining raw material costs have helped steel producers’ margins so far in 2017.

Apparent finished steel demand in China rebounded sharply from a weak February to reach 65.7Mt, up 16.3% month on month and 6.1% year on year. Most of this growth is tied to increased infrastructure spending, hence the strengthened prices for rebar in the country. China’s steel demand outside of infrastructure spending remains flat, albeit at high levels, and looking for fundamental support to grow in 2017. However, the tightening monetary policies and assets bubbles could pose a threat to the manufacturing sector recovery. The slowdown of investment activities will challenge the positive economic outlook in the medium term.

Meanwhile, India has put strong economic stimulus policies in place, which in turn has driven steel consuming sectors—such as infrastructure, property and automobile production—continuing India’s strong demand growth momentum. The new GST is expected to be implemented from the 1st July 2017, with steel products to be taxed at 18%. Raw materials, such as coal and iron ore will be taxed at 5%. With these new taxes in place, we expect production costs to stabilise, with the taxes set to benefit Indian steel producers in general, through higher margins. Steel demand is also expected to benefit from an associated jump in GDP growth with efficiencies of a simpler tax system flowing through every sector of the country.