Excess supply to pressure steel prices downwards: Manser

Iron ore prices have gone down 20% in the past quarter and Roger Manser of Steel Business Briefing said prices may go down slightly from the present levels and he does not see any major rise in steel prices soon.

China, a major producer of steel in the world is in a pretty bad condition, informed Manser. According to him, the manufacturers are not cutting back production and are doing what their government wants them to. This is increasing supply in the absence of robust demand.
"I expect global demand this year to be fairly flat, maybe 1-2% up. There is too much steel in East Asian markets at the moment and that is pressurising prices downwards," explained Manser. Hence, he does not see any major rise in steel prices anytime soon. Here is the edited transcript of the interview on CNBC-TV18. Q: Let me start with steel inputs first, I understand iron ore prices are down 20% in the past quarter? Can you give us an idea where they may be by the year end?
A: According to the steel index we are already 104.7 today and the prices have gone down quite a lot. I do think they will probably go down a bit further but, not a lot. In Q4, the futures prices in Singapore, according to The Steel Index (TSI), is around USD 95 dry metric tonne CFR China. That's the prices that we are seeing as a floor. It may go down slightly but not a lot.
_PAGEBREAK_ Q: Can you access for us the demand and supply situation of steel in Asia, maybe even East Asia at this point in time and how do you think this will look for the remaining part of the year?
A: Let us start with China because China raises around half the world's steel market and the situation there is pretty dire and bad. The producers are following what their government, what Beijing wants and are continuing to produce and they are not cutting back. So there is excess supply inside China at the moment. Demand is rather weak and China is exporting more than it has done in the past. Exports in July were more or less 9% of the total production which is relatively speaking quite high. 
So the situation inside China and if we look at Japan is not as good as we had expected. Japan is a major exporter of steel in East Asia. Korea is also producing a lot of steel. Probably all three countries are producing too much steel at the moment, much more than demand.
I expect global demand this year to be fairly flat, maybe 1-2% up. That means that there is too much steel in East Asian markets at the moment and that is pressurising prices downwards. Q: Given this oversupply where are steel prices, for e.g. prices of hot rolled coils headed? First if you can tell us how are they currently faring in the various areas?
A: At the moment the domestic Chinese price for hot rolled coils (HRC) is below USD 500 a tonne, if you exclude VAT. It is at a very low price but, probably some of the mills there are losing money and some are making a little bit of money because prices of iron ore has gone down. So they can keep going.
In Europe the prices are around USD 100 higher and around USD 600-620 a tonne while in the States they are another USD 100 higher, around USD 700; between USD 700 and USD 750 a metric tonne. Talking in terms of hot rolled coils at this stage, it gives you some perspective. You can see that the Asian market is by far the weakest at the moment. Q: And how would it pan out for the rest of 2012? Does it stay at USD 500? Does it get higher or worse?
A: I do see some positive signs in the global steel market at the moment. We do expect some sign of stabilisation in Q4. I don't expect any major price increases. Steel Business Briefing does not expect any major price increases in Q4 but, we do expect some general improvement in the market. In East Asia, Middle East and in Europe, we do expect to see some improvement.
So prices which are currently around USD 500, let us take a global average of around USD 600-650, are going to move a lot lower by the end of the year. We will probably see it around USD 650 a tonne. Q: Can you breakup how exactly thermal and coking coal prices are panning out at this point in time. I understand that there have been sharp price falls, how do you see coal prices panning out for the remaining part of 2012?
A: I cannot talk about thermal coal but metallurgical coking coal has fallen by about 25% since the beginning of the year and that’s even more than iron ore. Iron ore has probably gone down by about 20% since the beginning of the year but, coking coal has gone down by 25%. Again the prime reason for this is that the Chinese are buying much less and that is good for the Indian producers who buy, who import coking coal.
They should snap up as much coking coal as they can at the moment because the prices are low. Prices are attractive for buyers. Whether prices will probably stabilize fairly soon, I do not see lot of downside movement in coking coal prices, mills are going to be buying because their stocks are running down. They therefore are going to need to buy more coking coal and that's going to help stabilize the market as we go into Q4 and towards the end of the year. Q: You have been a veteran of the steel cycle, in the last downturn in steel which started mainly around 1996 and went on all the way up to 2003-2004, 6-7 years, will the current downturn last as long as that?
A: Overall we are going to be in a new situation for the next few years. But, I am not sure whether it will reach the low levels it did say 10-15 years ago. I do see that the overall picture in the global steel market and probably also in the iron ore market is one of much lower prices for longer period.
Now whether there will be some improvements, I am talking about USD 10-30 increase in prices towards the end of the year. But I don’t see any major increase, like for example a USD 100-150 increase in prices because there is just too much steel in the world at the moment and producers are not cutting back.
In July 2011, the global steel production was 2% up and given that demand is probably fairly flat globally, that is an excess of steel which will not badly affect everyone. I think the producers need to cut back a little bit.