The US semis market does not seem to be getting any help from the finished products market these days, with slab prices holding steady and billet prices headed down.
Billet prices have come down internationally as well as in the US due to oversupply and softening in the scrap and long product markets. One month ago, billet prices were higher than slab prices, so steelmakers who can produce both billets and slabs started focusing production towards billets and away from slabs. However, the increase in billet production has also generated an oversupply, which has caused billet prices to come down.
Another reason for the weakening billet market is the price decreases in the scrap and long product markets. The scrap market is undergoing a price correction, with prices declining significantly in the beginning of May. Scrap prices are expected to remain more or less stable in the month of June, however, demand for long products is still slow, and long product producers are willing to cut prices for large buyers.
Most billet deals are loosely indexed to scrap prices in the US. Domestic billet prices followed the big scrap price decreases in April and May and now range from $485 /mt to $505 /mt ($440 /nt to $458 /nt or $22.00 cwt. to $22.91 cwt.) delivered to rolling mills, which represents a decrease of approximately $80 /mt ($76 /nt or $3.63 cwt) since our last report on April 30th.
As for the international markets, in Asia, China's export tax on semi-finished products will increase to 15 percent from 10 percent starting June 1. This has artificially pushed export offers higher, but so far, these new prices have been met with a lot of resistance. Lackluster export sales have deteriorated the Chinese domestic billet market as well. Last week, billet export offers were at around $520 /mt to $525 /mt ($472 /nt to $476 /nt or $23.59 cwt. to $23.81 cwt.) FOB Chinese main port, with little or no takers.
CIS billet export offers are currently in the price range of $500 /mt to $505 /mt ($454 /nt to $458 /nt or $22.68 cwt. to $22.91 cwt) FOB Black Sea for late June shipments, while small producers offer below this range.
The US market doesn't have a big deficit of domestic billet supply. Hardly any commodity grade billets are currently being imported to the US due to weak US dollar and higher prices in the other markets. However, some specialty grade billets still make their way to the US. The most recent data from the US Steel Import Monitor show that during April and May 2007 up to May 29, the main countries that exported billets to the US were: Brazil, with 22,178 mt; Norway, with 7,576 mt; Canada, with 7,447 mt; Germany, with 3,046 mt; and Finland, with 2,180 mt. Some other countries that exported billets to the US during this period were Japan, China, Czech Republic, Italy and UK.
The market for slabs is still relatively quiet. Due to the slumping flat rolled market, there are not many slab imports coming into the US today. According to latest import statistics, as of March 2007, imports of slabs are down by almost 50 percent compared to year to date numbers in in March 2006. Demand for slabs from the US hot rolled coil market is not particularly strong, and although flat rolled inventories have come down in the past two months, service centers are in no hurry to replenish them since sales are slow. The amount of slab imports to the US is also reduced due to the weak US dollar. European buyers are able to pay higher prices than the US buyers nowadays (except for certain products like API grades), so suppliers aim to sell their steel to the European market first. This condition is not expected to change in the short run.
The current market price range for slabs is $500 /mt to $540 /mt FOB at loading ports ($454 /nt to $490 /nt or $22.68 cwt. to $24.49 cwt.).
Chinese slab offering prices have recently increased due to the 15 percent export tax, and are higher than most US customers want to pay. Last week, Chinese re-rolling slab offers were at $550 /mt to $580 /mt FOB ($499 /nt to $526 /nt or $24.95 cwt. to $26.31 cwt.). Nevertheless, CIS slab export prices are softening, and now range from $500 /mt to $540 /mt FOB ($454 /nt to $490 /nt or $22.68 cwt. to $24.49 cwt.).
The largest quantities of import slabs arriving in the US during April through May 29, 2007 came from Mexico, with 170,966 mt; Ukraine, with 127,974 mt; Brazil, with 106,610 mt; Russia, with 99,277 mt; Australia, with 72,588 mt; Japan, with 43,027 mt; and Italy, with 24,813 mt.
As billet prices are coming down faster than slab prices, it is expected that some steelmakers will reverse their production to back to slabs and away from billets in the third quarter. Therefore, slab supplies will increase in the third quarter and beyond. In addition, Brazil's new casters are going to produce more slabs for the export market. European companies will have a long summer vacation, and traditionally, buying and consumption will be light, which will also contribute to higher supplies this summer. As a result, slab prices are expected to trend down during the third quarter.