* Supply disruption in U.S., Turkey tighten supply
* U.S. prices spike after bleak first half
* Record Chinese output puts limit on further price increase
By Silvia Antonioli
LONDON, July 31 Stressed steel producers are
breathing a sigh of relief as prices bounced unexpectedly from 3
1/2 year lows in recent weeks, but excitement is unlikely to
last as oversupply is waiting to crimp the sector.
Prices of the alloy rose, in what is typically
a slow month, in leading producer China, the United States and
even austerity-stricken Europe.
Broad stabilisation of the global economic backdrop and
regional supply disruptions are the main catalysts for current
gains, with steel demand often cited as an industrial indicator.
"Right now it is evident that there is a global pick up," a
Swiss-based steel trader said. "But no one can think that the
market has radically changed, because there is still too much
production, especially in China."
Spot prices in Europe rose around 5 percent in
the last two weeks after over 20 weeks of decline, while major
producers and fabricators such as ArcelorMittal and
Italy's Marcegaglia announced prices increases for July, August
The increase, unusual for the sleepy summer months, is due
to rising raw material prices and a mild demand awakening as
slightly more confident end-users restock, Marcegaglia said.
"There is some kind of acceptance among buyers that prices
are going up. They are prepared to pay a bit more now," said
Meps steel analyst Jeremy Platt.
"Export quotations coming into Europe have increased, so
that gives some room to manoeuvre to domestic producers."
A margin squeeze in the last few years has pushed some mills
in Europe, Russia and Ukraine to curtail output in recent
This, coupled with a strike this month at Isdemir, a major
Turkish producer, has also helped create tension on the supply
side, traders said.
"For the first time in a long time there is no oversupply.
But how long is this going to last? One month? Two? The increase
was triggered by temporary rather than structural conditions," a
European trader said, adding that any sustained price increase
for the construction material would lead producers to boost
output once again.
POWER BACK WITH THE MILLS
After a bleak first half this year, prices in the United
States and North America spiked.
Structurally, the U.S. steel market is in better shape than
in Europe as it is anchored off stronger economic growth.
Steel demand however, underperformed the economy in the
first half - normally the strongest - and prices started to rise
for the first time this year only in June after technical issues
reduced supply at some major steelmakers such as AK Steel
and U.S. Steel.
The supply cuts lengthened lead times for delivery of steel
and pushed anxious buyers to put their orders through.
Domestic producers seized the opportunity to announce price
"For the first time this year the power is with the mills,"
a U.S.-based steel trader said.
"After six months of falling prices inventories were
depleted and buyers couldn't wait any longer. At the same time I
do think demand has improved as well. The question is how long
is it going to last?"
A recent trade case launched by U.S. steel pipe makers
against imports from nine countries is also supporting prices of
domestic flat steel products as importers reduce shipments
fearing retroactive duty.
Prices in top steel producers and consumers in China and in Asia have rebounded in July,
seasonally a slow period for the market, helped by an increase
in raw materials and on the back of restocking by end-users
which pushed some leading producers to raise prices for July and
The run-up however will be limited by heavy oversupply:
while demand growth for the alloy is slowing together with the
economy, China continues to churn out steel at a record rates.
This is mostly because Chinese authorities help state-owned
steel plants to maintain strong growth in an effort to keep
employment high and avoid social unrest while private steel
mills do not want to lose their market share.
As Chinese supply still swells it will continue to pour out
into other regions when there is a chance, subduing chances of
"We will see more swings but no sustainable growth until the
economy picks up strongly: China will always provide a ceiling
to the rest of the world," the U.S. trader said.