SBB GMO 10/12 by Westlund PVF

October 2012 Asian and US prices and demand look likely to improve in Q4, but European markets appear subdued

In North America, economic data and leading indicators have turned slightly posi ve, showing slow growth a er some months predic ng a small contrac on. Unemployment has fallen below the significant 8% level, building on some good figures recently, though there are few expecta ons that there will be any drama c boost for the economy despite elec on me approaching. During the summer, the general sen ment was that decisions will be on hold un l a er the elec on in November, with talk of a “fiscal cliff” un l the new administra on takes office early next year. However, business has con nued, albeit at a lower level, and there may s ll be a small improvement in demand in the rest of the year, especially in the automo ve and energy sectors. Economic growth con nues in Asia and China, though the World Bank recently reduced its expected rate to 7.7% from 8.1% for China and to 7.2% in East Asia. This slower growth is having a larger impact on steel demand, which will possibly only match last year’s consump on, although produc on con nues at a steady pace. Demand should improve in the rest of the fourth quarter, which is usually a strong period, a er the Golden Week holidays. Although this improvement in the steel market did not occur last year, when Q4 consump on was much reduced, the prospect of some posi ve effects from the recent s mulus is likely to li sen ment. Some sectors, especially construc on, are likely to con nue to perform well in the rest of the year, with the social housing programme on‐going, though higher consumer spending may also raise o ake in other sectors. The Eurozone crisis con nues, but most a en on is focussed on Greece with Spain and Portugal appearing to make some posi ve progress. Economic growth is s ll going to be minimal, with some countries in recession, and demand is unlikely to pick up in this quarter. IMF and World Bank economists con nue to blame weak economic growth in Europe for its effect on China and Asia. Business confidence in Europe is poor and is likely to remain so for Con nued on Page 2 

Global Overview Pg 4

Coil Regional Review Pg 6

Long Product Review Pg 7

Plate Review Pg 8

Scrap Review Pg 8

Global Overview of Production Pg 9

The key question is whether the price of scrap will rebound upwards at the same time as mills attempt the next round of price increases.

PRICES FOR FLATS IN US WILL DROP IN OCTOBER BUT SHOULD THEN INCREASE SOMETIME IN MID‐Q4 IF DEMAND IM‐ PROVES. EUROPEAN PRICES WILL STRUGGLE DURING Q4 UNLESS DEMAND IMPROVES UNEXPECTEDLY, COIL PRICES IN ASIA ARE LIKELY TO RISE OR HOLD. LONG PRODUCTS’ PRICES ARE LIKELY TO WEAKEN IN Q4 IN EUROPE AND US, THOUGH NOT AS MUCH AS SCRAP PRICING. ASIAN LONGS LEVELS COULD RISE SLIGHTLY. SCRAP PRICES ARE LIKELY TO FALL BEFORE RISING LATER IN THE QUARTER.

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Page 1

October 2012

the rest of the year. The euro had been weak against the dollar, but has recently become stronger. Previously, the level of imports into Europe had reduced and exports from local producers had increased, but imports are likely to rise during the fourth quarter. In US, flat products prices may slip further early in October as demand is still lacklustre while output remains high. Producers have not yet attempted any increases, but they are likely to try to catch any upwards momentum later in the quarter, as they have done successfully in previous years. In Europe, spot flats prices are likely to drop during Q4 before potentially stabilising at the start of the new year as demand will not increase, even for re‐stocking. Mills may need to cut back output to limit the price decreases. Long products pricing in mature markets will be under pressure while scrap weakens, but production levels usually match any drop in demand which will occur during the winter months. Asian steel prices have been exceptionally weak for the past six months but the rebound should continue if demand does rise towards the normal levels of the fourth quarter and Chinese exports decrease. Chinese pricing firmed briefly in late September and it is likely that sentiment will improve during Q4 if domestic demand increases while stocks are rebuilt from current low levels. Scrap prices are likely to continue falling at the start of October, continuing the downwards slide for most of September despite a large restocking exercise in Turkey. The price falls may last until winter weather reduces collection rates, but it is surprising how quickly and steeply the markets have rebounded since August. International demand in Turkey and Asia will help export levels be firmer, but domestic US and Europe prices are looking weak. Iron ore prices increased from recent lows during September. After the holidays in early October, Chinese buyers returned to the market to restock pushing prices sharply higher. There may be a short‐term correction, but ore levels are likely to rise further in the next few months if Chinese steel production remains at current rates. Looking ahead to the first quarter of 2013, producers in US and Europe should be aiming to push prices upwards if there is the anticipated rise in demand as usually occurs. However, these increases have been short‐lived in the last few years. In Asia, producers may be able to secure further price rises from the low levels reached in late Q3, but only if Chinese consumption improves and regional production is in line. The likely scenarios for the next three months are: • US flats spot prices are likely to slip but then increase at some time during mid‐Q4 if producers correctly judge the market sentiment and timing. Demand should improve,

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“Asian steel prices have been excep onally weak for the past six months but the rebound should con nue if demand does rise towards the normal levels of the fourth quarter and Chinese exports decrease” “Scrap prices are likely to con nue falling at the start of October, con nuing the downwards slide for most of September despite a large restocking exercise in Turkey”

Page 2

October 2012

especially for the start of the new year. Real demand is likely to be fair but re‐stocking could be limited after buyers’ experiences in recent years. • Northern European coil spot prices are likely to fall slightly during October, but there will need to be higher demand than expected if prices are to do better than stabilise in the rest of the fourth quarter. Output levels decreased as expected during July and August due to holidays, but it remains to be seen what production cuts, if any, will occur in the rest of the year. • Southern European flat products prices should continue slipping during October and possibly the rest of Q4, though the likely idling of Ilva’s Taranto plant may change the fundamentals and push levels back upwards. Spanish and Italian mills cut output in July and August, so over‐supply should have been reduced. • Prices of coils into Asia have rebounded slightly during September. Sentiment has improved since the turn‐around in China, and demand typically is stronger for Q4. Prices are likely to increase further in the rest of the fourth quarter, especially if Chinese exports are reduced. • Domestic Chinese flats pricing had been steadily falling since late Q2, but prices began to increase in late September and this should continue during Q4 if demand improves as expected. Output has been very strong so far this year, though lower in August, and stock levels are still high for the time of year, but the belated stimulus announcement should push prices upwards for the rest of the year. • Long products’ pricing is likely to weaken in Europe and US during October, even if construction industry demand remains steady. Falling scrap prices will pull down sentiment, but producers should not lose the full decline if production is maintained in line with demand. Prices in Asia have been rising slightly, and should now rise further during Q4 despite weaker scrap levels. • The spot market for 63% iron ore rebounded during September, after the dramatic decline since June, with prices finishing the month around US$ 105/dmt. Prices are rising strongly in early October and are likely to increase further as Chinese buyers finally restock, though strong availability should continue. • Iron ore quarterly contract costs for Q3, July to September, have fallen below Q2 levels and are now below spot market levels. Having been above spot during September, more suppliers and buyers are moving towards even shorter pricing periods. • Scrap prices declined sharply during September in most markets, with US domestic prices returning to end July levels. Export demand was strong, especially in Turkey, but prices fell here too. European domestic levels weakened during September and are likely to fall further this month. Asian and Turkish mills’ scrap demand is likely to be firm or increase over the next few months, which will only partially offset the weakness in Europe and North America. • Spot coking coal prices continued to fall during September, but levels were beginning to stabilise at the start of Q4. The expected improvement in demand in the fourth quarter is likely to push prices upwards, even before the probable supply problems at the turn of the year. WSA figures show that global output fell by 5 million tonnes (m t) in August, compared with

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“Southern European flat products prices should con nue slipping during October and possibly the rest of Q4, though the likely idling of Ilva’s Taranto plant may change the fundamentals and push levels back upwards” “The spot market for 63% iron ore rebounded during September, a er the drama c decline since June, with prices finishing the month around US$ 105/dmt” “Asian and Turkish mills’ scrap demand is likely to be firm or increase over the next few months, which will only par ally oﬀset the weakness in Europe and North America”

Page 3

October 2012

July’s figure, down to 123.7m t. Actual and daily production fell 4% as August is the same‐length month. Chinese monthly production was down heavily to 58.7m t, which is a 4.8% decrease in daily rate from July’s output, but the eight‐month total shows a rise of 2.3% from last year’s output. Other Asian countries’ production for August was only slightly lower on a daily basis. Most other regions also showed a small decrease in output, though EU‐27 production was down by 14.5%. Production also fell in Turkey, Russia and South America. However, North American output showed a further increase from July’s figure. The growth in global production so far in 2012 is 0.9% above 2011, and the year‐to‐date total is 1023 million tonnes, giving an annualised figure of over 1.5 billion tonnes. GLOBAL OVERVIEW US flats spot prices moved steadily downwards during September, losing US$ 60/st in four weeks while there were no attempts to announce an increase to halt the slide in prices. Producers appear to be waiting for the right moment when sentiment is HR Coil US$/t ready to change. Transaction levels could fall further before moving upwards later in Q4. Stockholder demand has not improved and re‐ stocking may only occur once prices are certainly rising, while end‐user offtake may also get better at the start of the fourth quarter if the general economic situation improves. In Europe, prices have fallen slightly during September, and demand appears too weak to keep levels up. It is hoped that offtake will improve in Asia during Q4, and flats and longs prices have both moved slightly upwards during September. Domestic China demand for flats has been poor during Q3, and strong output has sent prices downwards. Long products Graph 1 consumption has not been as strong as would be expected for Q3, and prices have begun to weaken during European Coil Euro/t Ex-works September. Chinese export prices have fallen, but may now increase in line with domestic market levels. In US, prices for coil products fell throughout September and continued to weaken at the start of October. Production levels rose slightly in August, which appears likely to continue during September and October, while the closure of RG Steel has had minimal effect. Plate prices weakened again, while rebar producers saw prices fall slightly in the middle of the month as scrap pricing turned downwards again. Prices for flat steel products in Graph 2 European markets fell slightly during

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“WSA figures show that global output fell by 5 million tonnes (m t) in August, compared with July’s figure, down to 123.7m t. Actual and daily produc on fell 4% as August is the same‐ length month” “Producers appear to be wai ng for the right moment when sen ment is ready to change. Transac on levels could fall further before moving upwards later in Q4” “Chinese export prices have fallen, but may now increase in line with domes c market levels”

Page 4

October 2012

September. European producers have yet to announce any price increases for Q4, but poor demand and low activity mean they would be difficult to achieve. Stockholders are unlikely to re‐stock before the end of the year, which is similar to the trend in recent years. Production levels have been cut sharply in July and August, due to the summer holidays, though it is unlikely that these cuts will be maintained in September and during Q4. Prices for HR coil in Asia have been falling sharply for four months, and CR and HDGalvanised coil prices have also dropped by similar amounts since early Q2. They have begun turning upwards during September and are expected to rise slowly as demand is likely to increase during the rest of Q4. Flat products prices in China fell for most of the month due to weak demand, but moved upwards towards the end of September. Some mills then announced increased list prices for October and November, in a move to strengthen spot market levels. Export prices for flat products from China decreased during most of September but were then raised by producers, following domestic prices and pushing up levels in regional markets. Long products demand had been fair during July and August in the mature economies of Europe and US, though offtake may have been set to fall from September onwards. Production as usual seems to have matched demand so prices have not been under pressure, but falling scrap prices have finally had a downwards effect. Prices in Europe have eased during September, and are likely to drop further in October as falling scrap prices and lower demand negatively affect sentiment. Rebar producers in US reduced prices during September based on the scrap‐pricing mechanism, but not by the full amount of the scrap fall, and are likely to reduce levels again in early October. Merchant bar and wire rod prices also fell in Europe during September as the hoped‐for gains in late August did not materialise, and are likely to weaken in the next few months as end‐user demand falls. Prices for H Beams, medium and heavy Rebar $/t sections have been slightly weaker in Europe and Asia, though US prices for WF Beams were reduced after the August increase was only partially achieved. European beam prices are likely to weaken slightly in October, but it is unclear if prices in US will fall further as the scrap price drops. In US, wire rod producers saw their price range slip during September, as lower scrap prices and rising imports took effect, and are likely to see further falls in October. Merchant bar prices in US were sharply lower during September, but could stabilise in October. Billet prices in South East Asia dropped Graph 3 sharply during September and could move further downwards in October as prices of export material from Turkey and CIS weaken due to lower demand in other export markets in the Middle East. Imported prices of rebar into SE Asia were initially lower during September, but then rose and may increase further in October as demand improves. Wire rods and merchant bar prices both decreased during September. Domestic prices for all long products in China were slightly lower during September despite steady demand as construction activity, including the social housing programme, remained good. Scrap prices fell sharply in US during the first half of September, as strong collection rates were met by weaker domestic demand. Import prices into Turkey and Asia had been rising in August but this has turned around during September. Prices in Europe should fall further in

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“Stockholders are unlikely to re‐stock before the end of the year, which is similar to the trend in recent years ”

“Produc on as usual seems to have matched demand so prices have not been under pressure, but falling scrap prices have finally had a downwards eﬀect”

“Imported prices of rebar into SE Asia were ini ally lower during September, but then rose and may increase further in October as demand improves”

Page 5

October 2012

October even if export demand remains firm, as the effect of higher offtake from the European mills in Q4 may not be significant. Prices for imported scrap into Asia could rise if demand grows, even before availability drops due to worsening weather in exporting regions. COIL REGIONAL REVIEW Flat products spot prices in US fell steadily during September, ending sharply lower, while producers made no attempt to increase price levels for Q4, though they maintained high output. Buyers have reduced purchases and probably de‐stocked, rather than rebuilding inventory as hoped after the summer slowdown. Flats prices moved slightly lower in northern Europe. Producers here have also not made any price announcements for Q4, but expected lacklustre demand means that they would probably not have been successful. Levels in southern Europe finished the month lower again and prices continue to be well below northern levels due to poor market sentiment and Ilva’s aggressive sales. Prices in Asia began to rebound upwards during September, as buyers returned to re‐stock in advance of the fourth quarter, while taking advantage of the lower pricing. HR Coil prices in US fell on a weekly basis totalling US$ 60/st to US$ 600‐610/st (US$ 661‐672/ t) at the end of September. Prices are likely to continue to drop in October until buyers and producers find that a bottom has been reached. CR coil prices also dropped by US$ 50/st, ending September at US$ 710‐730/st (US$ 783‐805/t). HD Galvanised coil only fell US$ 10/st to US$ 780‐810/st (US$ 860‐893/t), with the bright automotive sector continuing to support these products. Import volumes for most flats have been high, and arrivals could continue as bookings were made when export country price levels were lower than in US. Mill production rates rose again in August, so we are still awaiting any significant cut‐backs which seem unlikely in Q4. Flat products producers in northern Europe have seen spot levels slip downwards during September, and look likely to continue to slip further before stabilising at some point later in Q4. There is no impetus for buyers to consider re‐stocking after the summer shutdowns, and even real demand from end‐users may struggle to improve in October and the following months. Actual production dropped sharply in August due to the summer holidays in southern Europe, but it remains to be seen how much output returned in September. In northern Europe, HR Coils prices slipped to Eur 480‐510/t (US$ 623‐661/t), while CR Coils also eased to Eur 560‐575/t (US$ 726‐746/t). HD Galvanised base prices remained almost steady at Eur 560‐580/t (US$ 726‐752/t), as demand was stronger for these products, and end‐user offtake may be firm during Q4. Southern European HR coil prices HRC $/t dropped more sharply during September, led by Ilva’s attempts to maintain its order book, and levels fell even more clearly below those in the northern markets. Demand remains at low levels, and buyers had no need for re‐stocking in September after the summer shutdowns, so sentiment remains poor. Production was cut sharply in the summer, and the likely idling of Ilva’s Taranto mill sometime in October should lift market prices. HR Coil prices are now at Eur 450‐500/t (US$ 584‐ 649/t) but these prices could rebound in October, up towards the (falling) northern levels. Prices for CR Coil were more stable at Eur 550‐570/t (US$ 713‐739/t) while HDGalvanised coil base price was slightly weaker at Eur 540‐555/t (US$ 700‐720/t). Graph 4

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Coil Price Outlook Products (HRC)

Sep

Oct

Brazil dom. Del. BRL/t

2035-2110 2030-2110

China dom. Shanghai RMB/t

3260-3630 3600-3630

China export FOB $/t

510-520

E. Asia import CFR $/t

510-550

525-550

Eur import CIF S.Eur pt €/t

440-510

440-470

57-57

Middle East imp CFR $/t

560-640

560-600

N.America dom FOB $/s.ton

600-680

600-610

N.Euro dom Ex-Works €/t

480-520

480-510

Rus Blk Sea export FOB $/t

540-555

S.Euro dom Ex-Works €/t

450-515

450-490

Ukr Blk Sea export FOB $/t

530-540

Sep

Oct

Jap dom FOT ¥/kg

Products (CRC) Brazil dom. Del. BRL/t

2670-2690 2665-2687

China dom. Shanghai RMB/t

4190-4430 4360-4430

China export FOB $/t

580-600

590-610

E. Asia import CFR $/t

600-640

590-630

Eur import CIF S.Eur pt €/t

500-560

500-540

N.America dom FOB $/s.ton

710-780

710-730

N.Euro dom Ex-Works €/t

560-580

560-575

Rus Blk Sea export FOB $/t

630-650

610-630

S.Euro dom Ex-Works €/t

550-580

550-570

Ukr Blk Sea export FOB $/t

600-610

Sep

Oct

Products (HDG) China dom. Shanghai RMB/t

4650-4730 4600-4700

China export FOB $/t

645-660

650-670

E. Asia import CFR $/t

640-700

630-680

Eur import CIF S.Eur pt €/t

570-610

570-600

Mid E. import CFR $/t

780-840

690-750

N.America dom FOB $/s.ton

780-810

780-800

N.Europe dom Ex-Works €/t

560-585

560-580

S.Europe dom Ex-Works €/t

540-560

540-555

*Prices listed are SBB forecasts

Page 6

October 2012

South East Asian HR coil prices moved higher during September to US$ 525‐550/t cfr, and they may rise further during October, if demand improves as it should in this quarter and export supply from China falls from recent high levels. Latest Chinese export prices for HR coil were raised to US$ 510‐520/t fob, following the domestic market levels upwards, but new sales have apparently been difficult to achieve in regional markets. CR coil and HD Galvanised prices in SE Asia were more stable during September at US$ 600‐640/t and US$ 640‐700/t cfr, and they are likely to increase slightly in October. LONG PRODUCTS REGIONAL REVIEW Rebar prices moved lower during September in the mature economies of Europe and US. Prices in Asia moved upwards by US$ 10/tonne after early weakness. The reduction in US was due to falling scrap levels, but the fall was for less than the drop in scrap pricing. Rebar prices in Europe fell by Eur 20/t during September. Construction industry activity has been fair, though still lower than it should be for this time of the season. Prices are likely to weaken but not by as much as scrap if production continues to be well‐matched to demand in these mature markets. European prices for merchant bar were slightly weaker during September, and could remain stable in October. In Asia, H Beam, merchant bar and wire rods price levels were steady or slightly lower in September, but are likely to be firmer in the rest of the year. Medium and heavy sections prices in Europe slipped during September, with Wire Rod $/t prices moving down to Eur 580‐600/t (US$ 752‐778/t) after levels had risen slightly late in August. SE Asian H‐Beam price levels were steady in September at US$ 740‐750/t cfr, and these prices could remain stable during October even if scrap levels fall. Prices of WF Beams in US dropped slightly by US$ 15/st to US$ 775/st (US$ 855/t) as the big producer increase did not fully stick during September, and prices could slip further in October. Wire rod pricing in US fell back sharply in September to US$ 680‐700/st (US$ 750‐ 772/t) as the announced increases at the end of August failed to stick due to falling scrap prices. Rebar prices in US fell Graph 5 back by half the end‐August increase to US$ 660‐670/st (US$ 727‐738/t) in the last week of September. Prices did not fall by the full extent of scrap decreases as producers increased their base prices, while demand remained fair. Rebar prices in Europe fell back slightly during September and finished back at Eur 500‐550/t (US$ 649‐713/t), and are likely to slip further in October if scrap levels drop. Wire rod prices dropped back during September to Eur 510‐530/t (US$ 661‐687/t), as attempted increases were not fully accepted, and are expected to weaken further unless end‐user demand improves. Rebar prices in SE Asia rose US$ 10/t during the month to US$ 530‐550/t cfr after initially falling US$ 20/t. Import price levels for merchant bars decreased by US$ 20/t to US$ 700‐720/ t cfr. Imported wire rod prices into SE Asia were also slightly lower at US$ 520‐550/t cfr, but all these prices could be firmer in October. Billet prices fell by US$ 10‐15/t during September in SE Asia, and finished the month at US$ 560‐570/t cfr. Export prices for Turkish material have fallen steadily throughout September, finishing at US$ 530‐540/t fob, but producers will try to push prices upwards if Asian demand returns. CIS billet prices fell further to US$ 505/t fob.

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Longs Price Outlook Sep

Oct

Turkey export FOB $/t

580‐620

580‐590

Blk sea export FOB $/t

600‐615

590‐610

E. Asia import CFR $/t

520‐560

530‐550

Products (Debar/Rebar)

China dom. Shanghai RMB/t

3400‐3650 3640‐3650

Eur dom del €/t

500‐560

490‐550

Eur import CIF S.Eur pt €/t

520‐540

490‐530

Jap dom FOT ¥/kg

54‐54

Mid E. import CFR $/t

605‐615

600‐610

N.America dom FOB $/s.ton

660‐685

660‐670

Products (Beams /Sections)

Sep

Oct

E Asia import CFR $/t

740‐750

Eur dom del €/t

580‐610

570‐590

Jap dom FOT ¥/kg N.America dom FOB $/s.ton Products (Merchant Bar) China dom. Shanghai RMB/t

68‐68

775‐790

775‐775

Sep

Oct

3680‐3700 3600‐3620

E Asia import CFR $/t

700‐720

700‐710

Eur dom del €/t

540‐570

540‐560

N.America dom FOB $/s.ton

803‐831

803

Sep

Oct

620‐630

Products (Wire Rod) Blk sea export FOB $/t China dom. Shanghai RMB/t

3390‐3600 3590‐3600

E Asia import CFR $/t

520‐550

510‐540

Eur dom del €/t

510‐540

500‐530

Eur import CIF S.Eur pt €/t

530‐540

500‐530

N.America dom FOB $/s.ton

680‐750

680‐700

*Prices listed are SBB forecasts

Page 7

October 2012

COMMODITY PLATE REVIEW Plate prices fell in all regions during September, though European prices were slightly higher in dollar terms. Prices dropped slightly in southern Europe and fell more sharply in the north. Prices continue to fall in US and are likely to slip further before stabilising. Chinese export prices have also eased slightly in line with lower Asian market levels, but prices may rise in October if the regional markets are lifted by the change in sentiment. SE Asia, prices for commodity plate dropped sharply to US$ 530‐570/t cfr, Plate $/t but are expected to rebound in the rest of Q4 as demand is likely to improve. Export prices of Chinese material have also slipped in September to US$ 535‐ 540/t fob but should increase in line with the domestic market. Plate prices dropped downwards in northern Europe by Eur 15/t but could slip or stabilise in October; transaction prices are in the range Eur 550‐570/t (US$ 713‐739/t). Stockists’ inventories are reported to be at preferred levels, though there will be some de‐stocking. End‐user demand could improve during the next few months, so prices could hold firm provided output does not exceed actual demand. Graph 6 Southern European commodity plate producers saw spot price levels drop back after early increases during September, as the very poor demand in the key markets of Italy and Spain continued. Current levels are at Eur 510‐535/t (US$ 661‐694/t), and these may slip further in the next few months if imports increase. In USA, commodity plate prices have been falling for more than a year, as demand has eased and there was no summer rebound as for other flat products. Output which is higher than domestic demand and the strong level of imports have put pressure on prices, and this situation looks like continuing. Inventory levels are still high and are being reduced, so end‐ user demand will need to improve by more than anticipated. Prices fell back by US$ 20/st and were at US$ 760‐780/st (US$ 838‐860/t) at the end of September, and may fall further before possibly rebounding later in Q4. SCRAP AND RAW MATERIALS REVIEW Scrap prices have been falling sharply in most regions during September except Europe, where Euro prices were only slightly lower at the end of the month. Prices in US lost half of the previous month’s recovery during September, but were likely to give up the rest of the gains in October. The improved availability is back to normal after the summer in North America and in Europe, and the increased volumes have not been fully absorbed by better export demand to Turkey and Asia. Lower US and European prices usually slow collection rates and eventually pull price levels upwards, though there may also need to be further exports. Price levels in SE Asia and Turkey fell sharply during September, and are likely to continue to drop in October as export origin prices weaken. Domestic scrap prices in US for No 1 Bundles and Bushelling fell by US$ 20/lt during September to US$ 390‐395/lt. Shredded scrap was US$ 50/lt lower during September at US$ 345‐350/lt. Both prices are likely to fall further during early October.

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Plate Price Outlook Sep

Products China dom. Shanghai RMB/t

Oct

3580‐3600 3500‐3550

CIS export FOB $/t

570‐600

N.Europe dom Ex‐Works €/t

550‐600

550‐570

S.Europe dom Ex‐Works €/t

510‐530

500‐530

Eur import CIF S.Eur pt €/t

480‐510

475‐500

E. Asia import CFR $/t

530‐570

520‐550

N.America dom FOB $/s.ton

760‐800

760‐780

China export FOB $/t

535‐540

510‐515

*Prices listed are SBB forecasts

“Chinese export prices have also eased slightly in line with lower Asian market levels, but prices may rise in October if the regional markets are li ed by the change in sen ment” “In USA, commodity plate prices have been falling for more than a year, as demand has eased and there was no summer rebound as for other flat products”

Page 8

October 2012

Northern European Euro scrap price levels slipped during September, which meant a small increase in dollar terms. Scrap prices in southern Europe were also slightly lower in September, meaning they are now below levels in the north. In northern Europe, shredded scrap prices fell Eur 10/t during September and finished at Eur 290‐305/t (US$ 376‐396/t). Prices in southern Europe were Scrap US$/t Eur 15/t lower at Eur 275‐300/t (US$ 357‐389/ t). Export prices of shredded scrap from Europe fell sharply in September to US$ 342‐ 347/t fob, and will slip further in October until overseas pricing improves. Scrap prices in Asia also fell heavily during September to US$ 375‐385/t cfr for HMS 1/2, and prices are likely to continue to drop in October. Spot iron ore prices rose steadily during most of September, gaining US$ 11/dmt as some Chinese buyers decided that the market had fallen too far, though it still appeared there was no overall re‐stocking. Prices consolidated before the Golden Graph 7 Week holiday in early October but buyers finally began to re‐stock immediately after returning, though their steel output dropped from the run‐rate so far this year. Indian supply still remains low but prices could become workable if levels continue to improve. After this volatility, and with more contracts being Raw Materials US$/mt renegotiated as prices fell, miners and customers in China are agreeing current‐ month or weekly pricing periods which will closely follow the spot market. For September, spot prices were above the third quarter and the monthly average. The spot market for Indian origin material 63% Fe iron ore rose during September from US$ 93‐95/dmt to US$ 104‐106/dmt cfr. Coking coal spot prices have begun to rebound upwards to US$ 142‐150/t fob Australia during September. Spot prices had been affected by a sharp fall in Graph 8 demand, but again there is some restocking in China which should mean that some of this price drop is reversed during the fourth quarter, when weather problems on East Coast Australia are likely to return. GLOBAL OVERVIEW OF PRODUCTION The World Steel Association’s (WSA) monthly production figures show global production in August was 123.7 million tonnes, a decrease of 3.9% from July’s revised figure and down 1% compared to August 2011. Total world production for the first eight months of the year broke through the billion tonne barrier at 1.02bn t, up 0.9% on the January‐August total in 2011 and 9.7% higher than in 2010. Total monthly European production for August was just below 24.5 million tonnes, an 8.2% drop compared to the previous month and 3% down on August 2011.

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“Shredded scrap was US$ 50/lt lower during September at US$ 345‐ 350/lt. Both prices are likely to fall further during early October” “Northern European Euro scrap price levels slipped during September, which meant a small increase in dollar terms. Scrap prices in southern Europe were also slightly lower in September” “Prices consolidated before the Golden Week holiday in early October but buyers finally began to re‐stock immediately a er returning”

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October 2012

In the EU27 Germany, the largest steel producer in the region, had output of 3.4 million tonnes in August 2012, a decrease of 7.1% year‐on‐year. Italy’s crude steel production also saw a big y‐ o‐y drop of 15.5%, producing just 1.2 million tonnes whilst Crude Steel Output (thousand tonnes) Spain and France also saw Jun 2012 Jul 2012 Aug 2012 dramatic decreases of 10.3% and 7.2% respectively. 27,125 26,666 24,491 Europe In other Europe, total monthly 14,736 14,258 12,196 - EU 27 production fell by 2% from 3,146 3,261 3,188 - Other Europe July but increased by 5% y‐o‐y to 3.2 million tonnes with 9,243 9,147 9,107 - CIS Turkey’s output of 3 million 9,768 9,920 10,221 N America tonnes an increase of 8.7% compared to August 2011. 7,239 7,325 7,530 - USA Russian production for 3,835 3,963 3,861 S America August 2012 saw a 1.8% y‐o‐ 1,234 1,274 1,263 Africa y increase to reach 5.8 million tonnes, though this 1,673 1,404 1,572 Middle East was a 1% decrease on the 83,340 85,060 81,794 Asia output achieved in July. Ukraine’s crude steel 60,213 61,693 58,703 - China production was 2.7 million tonnes, a decrease of 13.5% 485 500 530 Oceania compared to August 2011 127,459 128,787 123,733 World Total but an improvement of 2.5% compared to July. Source: WSA North American production increased by 0.7% y‐o‐y and 3% m‐o‐m to 10.2 million tonnes driven by US production increasing by 1.2% y‐o‐y and 2.8% m‐o‐m to 7.5 million tonnes. However, the August figures are enhanced by a downward revision for July’s production of 1.5%. Should a similar revision be applied to August’s figure it would mean US production in fact decreased y‐o‐y. For the first eight months of the year North American production is up 4.4% y‐o‐y to 82.9 million tonnes. South America saw a big y‐o‐y drop in its crude steel output of 6.8% with the total dipping below 4 million tonnes to 3.9 million tonnes. The fall was led by Brazil, which accounts for 73% of output in the region, registering a y‐o‐y drop of 6.2% and a m‐o‐m decrease of 5.5% with output of 2.8 million tonnes. China’s output for August 2012 was 58.7 million tonnes, down by 4.8% from July and 1.7% lower than the output recorded in the same month last year. Total Asia production in August was 81.8 million tonnes, down by 3.8% m‐o‐m and 0.5% y‐o‐y with the slip in Chinese production more than eradicating the respective y‐o‐y gains of 2.6%, 3.3% and 2.8% for India, Japan and South Korea. World output excluding China was 65 million tonnes, down by 3.1% m‐o‐m after July’s figure was revised downwards by nearly 1 million tonnes from 68 to 67.1 million tonnes. The figure was down 0.5% compared with August 2011.

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