Steel demand this year: World vs China!!!
I know I am not bullish about further strength in the market right now but I know some of you are. So it is my job to report any interesting news or research I come accross if I think they could be useful to investors. Today, I found this really good piece of research on steel coming from the Macquarie research team.
Jim Lennon and its team of analyst specialized in commodities prices trend have looked at the market for steel recently and they now believe the bottom of the cycle for steel is now behind us. They looked at recent steel price trend and production volume. For the month of June the volume of crude steel production worldwide was 1,22bn tonnes annualized, which is 16,5% lower than last year all-time high of 1,465bn but more than 20% above December '08 lows of 1,01bn tonnes.
However as much as they believe production volume for crude steel are going to keep increasing in the coming months they are not sure prices will follow the same trend. Except for China's steel companies, the rest of the world have had very low level of production in the past few months as shown in the graph below. If worldwide production starts to recover then it is more than likely that there will be sme downward pricing pressure and that would keep prices at low levels. As long as there is no supply/demand disruption it is unprobable to have a strong price increase in crude steel prices. The graph below shows that right now Chinese production accounts for almost 50% of the total production in the world.
The good news for steel companies outside China right now is that "apparent" level of demand in China are outpacing the level of domestic production, and as a result China is likely to import steel in the coming months. It is not unrealistic to think that Japanese steel makers are taking advantage of this supply/demand disruption in China. It is too soon to know if they indeed took advantage of the strong demand for steel in China but if you believe it has been the case then you should probably buy stocks like Nippon Steel or JFE Holding ahead of earning results.
Like I said at the beginning, it is my scenario and I believe the demand for steel coming from China will stabilized in the coming months while the demand worldwide will continue to remain sluggish. However, if I am wrong there could be some very good opportunity in investing in Japanese steel makers. The charts below shows that steel prices have a long way to go before they catch up with production level. If you see a rally in steel prices then steel stocks will rally too.
Jim Lennon and its team of analyst specialized in commodities prices trend have looked at the market for steel recently and they now believe the bottom of the cycle for steel is now behind us. They looked at recent steel price trend and production volume. For the month of June the volume of crude steel production worldwide was 1,22bn tonnes annualized, which is 16,5% lower than last year all-time high of 1,465bn but more than 20% above December '08 lows of 1,01bn tonnes.
However as much as they believe production volume for crude steel are going to keep increasing in the coming months they are not sure prices will follow the same trend. Except for China's steel companies, the rest of the world have had very low level of production in the past few months as shown in the graph below. If worldwide production starts to recover then it is more than likely that there will be sme downward pricing pressure and that would keep prices at low levels. As long as there is no supply/demand disruption it is unprobable to have a strong price increase in crude steel prices. The graph below shows that right now Chinese production accounts for almost 50% of the total production in the world.
The good news for steel companies outside China right now is that "apparent" level of demand in China are outpacing the level of domestic production, and as a result China is likely to import steel in the coming months. It is not unrealistic to think that Japanese steel makers are taking advantage of this supply/demand disruption in China. It is too soon to know if they indeed took advantage of the strong demand for steel in China but if you believe it has been the case then you should probably buy stocks like Nippon Steel or JFE Holding ahead of earning results.
Like I said at the beginning, it is my scenario and I believe the demand for steel coming from China will stabilized in the coming months while the demand worldwide will continue to remain sluggish. However, if I am wrong there could be some very good opportunity in investing in Japanese steel makers. The charts below shows that steel prices have a long way to go before they catch up with production level. If you see a rally in steel prices then steel stocks will rally too.