London steel firms, Turkish demand supports

LONDON: The London Metal Exchange's steel billet futures firmed in light trade last week, tracking the physical market where strong demand from Turkey underpinned the prices, traders said.

Volumes remained small, as market attention mainly focused on the volatility in the overall commodities market, where gold and oil keeps hitting record highs. The Mediterreanean contract traded at $855 per tonne on Monday, rising from a last quote of $830/875 last week while the Far East contract was at $850/862, up from last week's $835/865.

"Although volumes remain limited, there is an overall feeling that LME prices have been tracking physical spot prices quite accurately," said Jean-Luc Fiorenzoni, head of steel price risk management at Stemcor, the world's biggest independent steel trader.

The "soft launch" of the LME's billet futures kicked off on February 25, when contracts started electronic and telephone trading. On April 28, when the "hard launch" is due, contracts will move to the floor of the Exchange for open outcry trading.

Traders see the price correlation with the physical market as a good sign, but LME brokers have been kept busy due to the recent turmoil in financial markets. "With uncertainties hanging over the U.S. economy and the general state of financial markets worldwide, LME brokers have been kept extremely busy by volatility and high activity in the more mature base metals markets," Fiorenzoni said.

Gold prices shot up more than 3 percent and traded over $1,000 per ounce as investors dumped equities to flee from riskier assets. On the physical steel market, prices have been strong as a result of limited supplies and demand for long products. The physical market's been climbing," said David Rawlings, senior metals trader at LN Metals.

"I believe the reason is the hot domestic market in Turkey where there is continuing very high demand." Billets are semi-finished products in the form of long steel mainly used in the construction industry. They account for almost half of the world's total crude steel production, which is around 1.3 billion tonnes annually.

The price of scrap, a major raw material in billet production, has risen markedly since the end of last year, as a tax on Chinese exports curbed the supplies from that country. "Scrap prices are also going up and Turkey works on scrap-based production," Rawlings said and added:" There is not as much capacity released to the international market and for the Far East contract, supply has been reduced due to very little Chinese product because of the export tax."

Crude steel production from China, which has lost momentum since November, rose only 7 percent in February, compared to the same month a year earlier. "Long steel production growth apparently has lost its momentum sharply, implying a potential further price surge in coming months when second quarter seasonal high demand kicks in," analysts at Macquarie Bank said in a research note.

Volumes at the LME remained thin, with traders citing interest from merchants and small producers in the Middle East. A number of steel giants such as ArcelorMittal have repeatedly dismissed the idea of steel futures. But last week, Europe's No. 2 steelmaker Corus, owned by India's Tata Steel, said it might use the contracts. "There could be certain situations where we could use steel futures, for example where we have surplus billets for trading," Chief Executive Philippe Varin told the media.

Source : TET