* Steelmakers optimistic on industry after good results
* Overcapacity seen capping gains
* US prices in front but could attract more supply, imports
By Maytaal Angel and Manolo Serapio Jr
LONDON/SINGAPORE, Dec 11 Recent declines in
European and Asian steel prices are not likely to derail a
modest market recovery over the past five months, but instead
these prices are expected to rise to narrow the gap with higher
Leading steelmakers, after posting forecast-beating
quarterly results, have become more optimistic on the outlook
for the $500 billion-a-year industry, which is often seen as
gauge of economic health.
ArcelorMittal said its two-year slump was over and
that prospects for 2014 were looking up. Tata Steel
flagged rising prices in its results and said performance in
Europe had improved, though challenges remained.
Meanwhile, however, prices of EU and Asian
steel have retreated from three-month peaks
reached in September, while. U.S. prices are
currently near one-year highs.
Industry players said that, despite the recent declines, the
three-year low in June marked the trough in the
"Oversupply is priced in to the extent that the equity
market knows this is a difficult industry. The big picture cycle
is long gone, but I think we're on the cusp of a mini cycle,"
said Michael Shillaker, head of steel and mining research at
U.S. steel prices have been supported in the second half
of 2013 by a more robust economic recovery, consumer restocking
and supply disruptions at major producers AK Steel and
U.S. Steel, as well as by a string of anti-dumping
By contrast, markets in the Europe Union and Asia have been
held back by tepid economic growth, weak construction demand in
Europe, lacklustre export markets in Asia, structural
overcapacity and a year-end pause in restocking.
"The U.S. restock normally happens at the end of the year.
The restock in Europe and Asia happens into the new year,"
Industry body Worldsteel forecast demand in Europe would
grow by 2.1 percent next year as a fledgling economic recovery
solidifies. Growth in China, the world's top steel producer and
consumer, will be 3 percent as it rolls out reforms to maintain
economic growth, it said.
Price gains will be capped, however, as mills respond by
increasing production, which may already be starting to occur.
Output in Europe rose on an annual basis in September and
October after falling from January through August, while output
in China has risen every month this year from the prior month.
Analysts and industry bodies estimate China's overcapacity
at 200 million to 300 million tonnes and Europe's at 30 million
to 40 million.
"We think (global) price increases will be fairly modest
(next year), certainly less than double-digit," said Peter Fish,
managing director at UK steel consultancy MEPS.
"With China there's an increase in demand, but that always
seems to be matched by an increase in supply. Demand in Europe
is going to improve slightly, but we still lost the main driver
for steel prices, which is construction."
In the United States, economic conditions have supported
prices so far, but the market is at risk of both a supply surge
from mills and an uptick in imports as U.S. prices exceed Asian
prices by around $160 a tonne, MEPS said.
"The U.S. market is fairly protected in terms of
anti-dumping, so a differential can exist and can exist over a
long time, but it can't be sustained at current levels," a
U.S.-based steel trader said.