5 July 2018
- We assess short-term supply conditions as outright bearish. Supply increases have been observed across various aspects of the supply chain. This uptick in supply is expected to apply downward pressure on prices. Mills reverted to de-stocking mode, potentially due to the decline in margins for the past 6-7 weeks. With margins remaining under pressure, it is reasonable to suggest that this trend should persist in the short-term which is a negative price development.
- We estimate short-term demand conditions as bearish. With rising input costs, steel margins continue to decline since peaking in week 19. Steel rates look to have slowed down on the back of lower margins. Our domestic vs. import arb has declined and is now negative for seaborne prices. Additionally, our cash and carry arb weakened further which suggests a downward pressure on prices.
- Short-term macroeconomic conditions are bullish. The latest manufacturing data suggests firm downstream demand which should support steel (in particular flat products) going forward. However, our preliminary estimates of short-term construction data suggest weaker construction activity which should curb demand for IO. The firmer importers’ currency basket gives our overall Currency Impact Index a bullish bias. We also expect short term credit conditions to improve which will support prices.