Steel prices to go up in Asia, Europe: SBB

Steel has been one of the worst performing spaces in 2011. But Roger Manser, Consultant to Steel Business Briefing sees steel price moving northwards in the January-June period in Asia and Europe. This will sustain only if steel producers don't over-produce, Manser said in an exclusive interview to CNBC-TV18. He also predicted slight improvement in Chinese demand for steel in the second quarter, which traditionally is when construction works are in demand.

Below is the edited transcript of Roger Manser's interview on CNBC-TV 18.

Q: Let's first start with the Asian situation. We have got this not so bad GDP number from China but yet the sub 9% number for the first time in two-and-a-half years. How do you expect Chinese demand to pan out? Do you sense the slowdown theme will continue in the first half of this year?

A: No I don't expect more slowdown. I don't expect much improvement either. But I cannot see much that can slow down. The credit situation is likely to ease slightly during the months up to Q2. So I do expect to see some more restocking of steel during February and March. I do expect also to see some improvement in steel prices partly because iron ore prices are firm and partly because I think demand will moderately improve within China. I don't see massive growth in the first quarter. Second quarter may be a little stronger because that is traditionally the stronger quarter for construction. So I do expect something stronger in the second quarter. That's our view at SBB.

Q: So broadly how do you expect Asian steel prices to pan out for HR coils in the first six months?

A: At the moment I think that December prices were probably at their weakest. So the movement for the period January to June should be upwards. The question really isn't whether it's going to go up but how sustainable would any increase be? That depends on producers not demanding too much, being moderate in their requests to consumers and not producing a lot more steel. If they do produce a lot more steel, prices will go down again or at least stay soft. So, I do see a moderate improvement in prices in the first half in Asia. That would probably be true for Europe as well, maybe not so much in the United States. United States prices are quite high. So we may even see a decrease in the prices there because they are up about USD 850 per tonne or potentially up to USD 850 per tonne, taking into account increases at Severstal and North America. So I do think that the US prices may weaken a bit, but in Europe, Middle East and Asia they will increase.

Q: What's your take on the landed prices of steel in India? Could they have a depressing impact on domestic prices?

A: Yes I mean given the importance of China as an external supplier to India, I do think that will be the case; obviously there will be the issue of rupee. But broadly yes, I think that the Chinese will definitely want to continue to export to India in 2012. Their own domestic market will not be strong enough to absorb all the steel that they are going to produce within China. So they could export to India. On the other hand we have to bear in mind though that India is becoming an important producer with expansions at Hazira by Essar Steel , which I think came on stream at the end of last week and will ramp up during 2012-13. That will mean India itself will become probably even more of an exporter than it has done so far during 2011. So the situation is not going to be so clear. The question remains about how much the producers can moderate their steel production to match what the market needs. So I think the prices are really in the hands of the producers. They cannot produce too much. They have to understand that their markets both domestic and external a lot more than they used to. I think that's something that companies in India, China, Europe, everywhere will have to take on board much more during 2012.

Q: In that sense what kind of an impact do you think raw material prices would have? Say for example, iron ore prices, how do you see them trending in the first half of this year?

I think that certainly. Iron ore prices didn't react so much on Friday despite cyclone Heidi. we had cutback in shipments from Brazil and they were relatively stable. In the last two days of last week, iron prices went down a bit. But we have to wait and see how much they will go up. The general view on iron ore prices is moving around USD 140 per tonne. Most analysts say that the average increase for 2012 will be USD 150 per tonne. I am not quite as optimistic as they are. I would certainly say that the averages we are talking about in 2012 might be somewhat less. I know that some people are talking even higher figures than USD 150, talking about USD 160-170 per tonne for iron ore. I still remain on the lower end of that side the reasons being that I don't think demand is going to be that strong