International steel prices are expected to rise 21% this year

The prospect of a resumption of stronger global economic activity, associated with significant increases in the prices of iron ore and coal - the main raw materials industry - will boost the prices of steel products in 2011.

Our expectation is that prices of hot rolled coils in the world market reaching an average of $ 751 / t in the year, up 20.8% compared to that observed in 2010 (U.S. $ 621.9 / t), with peak U.S. $ 830 / t in June (Figure 1).

The high should be concentrated in the first half, when they are expected to more pronounced increases in the prices of raw materials. In the first quarter, we expect an increase of 17% in steel prices over the last three months of 2010, reflecting in large measure, the pass-through of price rises in raw materials produced in the course of last year and who had not yet been passed by steel, given the relatively weak demand scenario.

Economic activity in developed countries must follow in gradual recovery trend, just as occurred last year.After a high of 2.9%, GDP of the United States must submit expansion of 2.8% in 2011. For the EU, we expect growth of 1.1% compared to 2010, when there must have been growing about 1.7%. Remember that, although the rates of growth expected for this year are smaller, they occur on a basis of comparison most appreciated.

The highlight, once again, should be in charge of emerging countries, notably China - the largest producer and consumer of steel - that, despite measures to control inflation, should present expansion of 9.0% in 2011 after growth of 10.3% recorded last year.

On the supply side, however, there should be no great pressure. Our expectation is that the world steel production to grow 9.3% this year, with very similar rates by China and other producing countries. In 2010, despite the energetic constraints, which resulted in the closure of several smaller steel mills, steel production in the Asian country rose by 9.9% over the previous year, when it had been recorded growth of 13.7% compared 2008. In this context, China is gaining more space as the main global producer of steel, produced its share fell from 31.7% in 2005 to 44.8% last year (Figure 2).

Almost all of China's production is consumed domestically. In 2010, 96% of total production was consumed domestically. Domestic demand, which started in 2010 after the slow pace recorded significant increases during 2009, began to show some reaction from last quarter (Figure 3), a trend that should be maintained throughout this year. Stocks, albeit at historically high levels, represent a significant share little in terms of consumption - in December, they represented only 14% of the monthly consumption of the country.

Source: Trends Consulting