- As we anticipated, rebar prices in Eastern China (ex-warehouse basis) rose in May, coming within 0.6% of our forecast. Strong demand at home meant that Chinese producers were largely absent from the export market, maintaining their offers near $450 per tonne, while import prices into Singapore were set near $400 per tonne cfr basis.
- The downtrend in Chinese domestic and export flat steel prices that lasted from March to April was reversed in May. Export and Eastern China prices rose by 3.2% and 6.0% month on month respectively, partly due to a strong rally in demand which ate into stocks, and also a rally in iron ore prices. Mills had to increase their offers to avoid a further squeeze to their already-narrow margins. We expect prices to continue rising in the coming months, supported by a revival in economic activity, as the steel manufacturing purchasing managers' index (PMI) bounced back into expansionary territory in May and elevated raw materials prices.
- European flat and long steel prices declined as we expected, with domestic hot-rolled coil and rebar prices falling by 9.0% and 4.2% respectively, settling within 2% of our forecasts. We expect flat steel prices will continue trending down in June reaching the floor level, and the uptrend should start from July, in line with a gradual recovery in end-user demand. For rebar prices, we maintain our view that prices will move down further in the coming months amid subdued construction demand and high stock levels in the distribution chain.
- The European market remains in limbo waiting for a decision about a cut to safeguard quotas after the local steel association, Eurofer, requested a 75% cut for the second half of 2020. The European Commission (EC) presented a draft of reviewed safeguard measures on May 29, which mainly aims to change the rules around the access to residual quotas and introduced country-specific quarterly quotas for HRC. Some market participants expect the EC might still bring in cuts to quotas in a separate ruling, freezing the import market.
- In the United States, we upwardly revised our flat steel price forecasts for June to reflect rising traction with recent price increases. We maintain the view that US sheet product prices will trend higher in June and into the third quarter of 2020, supported by elevated scrap costs, limited import competition, reduced domestic steel production, relatively steady demand from the construction sector, and the gradual return of automotive and other manufacturing sectors. Risks to prices from late in the third quarter onwards remain largely centered on domestic steel output, declining prime scrap prices as manufacturing capacity returns, and the risks of a second wave of Covid-19 and the potential for further lockdowns later this year.
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