Global Steel Market Watch-Vol. 510: China’s exports rise to historical high

UBS steel index rebounds: up for Russia and down for South America.

    As at 14 November, the UBS steel stock index turned up slightly, by +0.1pt wow. It hasfallen -11.1% since the beginning of this year. By region, the index rose for Russiansteel stocks, including MMK, and fell for South American steelmakers, including CSN,Ternium and Gerdau. Crude oil price declines resulted in continued falls of steel pipecompanies. Tokyo Steel advanced sharply due to the yen’s weakness. FY14E PER at thecompanies we cover stood at 11.4X, EV/EBITDA at 6.8X, and PBR at 0.9X.

    Steel product prices rebound in the US but export prices fall in China and CIS.

    Steel sheet prices turned up slightly in the US following the steelmakers’ price increases.

    However, pressure from imported products remains strong amid dollar appreciation. InChina, steel bar and HRC prices advanced temporarily as output was reducedtemporarily at the Chinese government’s request, but fell towards the end of the week.

    China’s export prices for HRC were weak and are the lowest in the world, at $465/t(FOB), and this is putting pressure on global prices. The CIS nations’ export prices forHRC fell as well, to as low as Chinese prices. In Japan, long product prices, which haveremained high, are declining. Ferrous scrap prices declined sharply in the US, and thedisparity between pig iron and ferrous scrap prices has narrowed.

    China’s export and steel sheet trade trend (from page 12).

    In October, China’s net exports of steel products rose to an historical high level. It wasas high as India’s annual consumption on an annualised basis, and is putting pressureon global prices. The trend in steel sheet trade indicates that net export volumes fromChina and South Korea, which are becoming increasingly self-sufficient, are growing. InChina, removal of the preferential taxation on exports of HRC containing alloy is beingdiscussed, but it is uncertain whether any effective measure will be released.

    Bullish on Europe and North America; bearish on South America and China.

    Chinese stocks are advancing, reflecting expectations for policies and temporary outputreduction during the APEC meeting, but an earnings recovery seems unlikely and wemaintain our bearish investment stance.