Nickel: Where To, and How Fast?

How should stainless consumers plan their product design and view material purchasing options strategically in the face of such a strong nickel price? It is no secret that during the last price spike in 2007, many re-designed products had been made to use low or even zero nickel-content stainless steels rather than more volatile 304/316 grades that had previously been the mainstays of any application requiring significant corrosion resistance. One assumption could be that nickel and hence high stainless prices are an inevitable consequence of the commodities super-cycle, a phenomenon driven by a rapidly industrializing third world led by China and India, and that stainless users had better not stand in the way of history – high prices are here to stay. It would be easy to take that view from the popular press coverage of commodity price escalation, but not all commodities are equal and specifically not all metals are driven by the same fundamentals. While the investment community can be a general driver of prices when metals are caught up as part of a basket of investments, given time, the fundamentals of each impact the weights of a metal held and more importantly the appetite traders, consumers and the investment community have for holding stocks or speculative positions.

In the case of nickel, supply has been constrained due to a number of reasons, not least of which is the massive peak in price during 2007 being followed by an equally massive trough in 2008/9 that while it preceded the financial crisis was made worse and more prolonged by the collapse in stainless demand that ensued.

Source: Credit Suisse

As a result, mine development plans mapped out in the middle of the decade as the prices rapidly rose were just as rapidly shelved in the aftermath of the price collapse. Even though new mine developments were shelved metal stocks continued to rise throughout 2008/9 as this graph from the same Credit Suisse report shows.

Source: Credit Suisse

Fortunately for nickel, no one told China they were supposed to be in recession during 2009 and so the Chinese stainless industry has been running at full tilt for the last two years. So much so that China is now by far the largest stainless market, larger even than the regional market of Europe, as this graph shows.

Source: Credit Suisse

The impact on nickel demand has been profound, sucking in nickel imports even while domestic production of nickel pig iron has soared. The strong demand and draw-down on visible stocks such as the LME has driven up the price and as a result the dust has been blown off those mine developments and money poured into bringing them on stream. The World Bureau of Metal Statistics in their most recent January report advised that the nickel market was in deficit from January to November 2010, with apparent demand exceeding supply by 20.1 kt, compared to a market surplus of 14.3 kt recorded in the first 11 months of 2009. Credit Suisse estimates the deficit for the whole of the year at between 60 and 70 kt. Whatever the correct figure, with growth at 11.8 percent during 2010, the market has been consuming more than has been produced and that dynamic has been driving the price.

Source: Credit Suisse

Meanwhile those new mines are coming on stream. The above graph from Credit Suisse illustrates how rising supply is likely to really start impacting the market this year even if some projects are a little slower than forecast in reaching full potential. While re-stocking drove some of 2010’s growth, the bank is predicting 2011 as being closer to 5.7 percent ongoing growth, half the level of last year. As the market moves from deficit to surplus later this year or early next, sustained prices at close on $30,000 per metric ton look less sustainable. Credit Suisse sees nickel prices falling later this year and expects them to be back below US$ 20,000 per ton in 2012. Maybe at that level, continued use of nickel-bearing stainless steels still makes sense and further demand destruction for nickel can be avoided.

–Stuart Burns

Turkish long steel prices still on the retreat

US Steel mills increase prices after price hike by AK Steel

It is reported that after AK Steel announced to increase the spot prices of sheet by USD 50 per short tonne, the US steel mills have followed AK Steel to raise the prices in this week.

However, the new price hike hasn't been accepted by the market.

Traders indicated that if Metals Service Center Institute's inventory decreases and the delivery volume increase, the new price hike will be accepted by buyers.

(Sourced from YIEH.corp)

China steel prices seen rising in near term - CISA

SHANGHAI Feb 18 (Reuters) - Steel prices in the Chinese domestic market will continue rising in the near term thanks to recovering demand and rising raw materials costs, the China Iron & Steel Association (CISA) said on Friday.

CISA said it expected a gradual pick-up in demand at home and abroad, with costs of raw materials such as iron ore, coke and scrap likely to keep surging, pushing steel prices upwards.

"This year is the opener of the 12th five-year plan, so steel demand will remain strong as economic growth is expected to remain healthy," CISA said in its monthly report.

Major steel-consuming sectors such as construction, machinery, transportation, home appliances and shipbuilding would continue to grow, lifting steel demand, it added, noting that infrastructure projects would also contribute to rising demand.

The Ministry of Industry and Information Technology forecast earlier this week that China's crude steel output would hit a record 660 million tonnes this year, with downstream demand providing a boost. [ID:TOE71F046]

However, CISA also warned that non-steel mill steel product inventories had risen sharply, and domestic steel production was also on the rise.

CISA data showed that China produced 1.7033 million tonnes of crude steel on a daily basis in January, up 2.5 percent from December.

Non-steel mill inventories of five major steel products in 26 big cities rose 11.2 percent to 14.72 million tonnes in January from the previous month, especially for rebar and wire rod used in the construction sector. (Reporting by Ruby Lian and Tom Miles; Editing by Chris Lewis)

Chinese buyers expecting lower iron ore prices

CHINESE mills and traders, as well as Australian miners, expect iron ore prices to fall by at least 10 per cent later in the year as the world's biggest steelmaking nation steps up the overhaul of the sector as part of the country's new Five Year Plan.

China's largest steelmaker, Baosteel, lifted its prices this week for the third month in a row even as it continued its acquisition and expansion binge, but authorities signalled that overall output growth in the sector was planned to slow this year.

Another top-five Chinese steelmaker, Wuhan Steel, and Japan Nippon Steel have also increased their prices in recent days.

Spot prices for high-grade Indian ore hit $200 per tonne this week and have already risen more than 12 per cent this year, after jumping over 40 per cent last year.

The higher prices will feed into the next quarterly contracts, which use a weighted average from the previous quarter.

As well as higher iron ore prices, steelmakers have faced higher coking coal costs because of flooding in Queensland.

Ironically, higher steel prices will feed into Australian inflation as we buy back finished steel products from China, Japan and South Korea.

But traders and mill staff predict that while high iron ore prices will continue for several months, they will fall back in the second half of the year.

One mining executive predicts they will fall by about 10 per cent, a similar prediction to that made by a Chinese steel company executive.

A recent report from China's Shanxi Securities says consolidation in the Chinese sector -- in part designed to combat the oligopoly power of the three mining majors, Vale, Rio Tinto and BHP Billiton -- accelerated in late 2010.

It says this will be the main theme for the sector in 2011, with Baosteel, Hebei Steel Group, Ansteel and other major steel groups all expanding by buying private mills and smaller government-run operations as well as developing more modern and cleaner production capacity.

The report says the steel sector plan for China's 12th Five Year Plan -- which runs from 2011 to 2015 -- is being finalised and that several huge steel groups will be formed, a long-held aim of the Chinese government.

As well as a "structural optimisation" aimed at strengthening China's negotiating position for raw materials, the plan is believed to target lower energy costs and lower emissions.

Last month, the Hebei Steel Group acquired a share of seven private steel companies in Hebei province, the biggest steelmaking region in China.

Shandong Steel is trying to consolidate the industry in one of China's most populous provinces and Fortescue Metal shareholder Hunan Valin is keen to list on the stockmarket.

Baosteel is creating a new steel venture in the southern industrial province of Guangdong after buying Guangzhou Steel and Shao Steel.

The government is trying to strip capacity from higher emitting and polluting mills.

Ferrous Scrap Prices The First Ride on the Steel Price Rollercoaster?

Back in early January we posted our expectations for the steel market throughout the course of this year. And though we called for higher steel prices throughout the year, we thought pricing would come in the form of a roller-coaster. Whereas we don’t anticipate any short-term dips in steel prices, the ferrous scrap markets have taken a breather so to speak. According to ISRI’s latest report, “Scrap Price Bulletin did report falling composite ferrous scrap prices this week, with No. 1 dealer bundles down $16/gt for the week to $465.17, shredded scrap down $21/gt to $454.83 and No.1 HMS off nearly $20/gt to $420.83, while other sources were reporting even bigger drops in both domestic and export ferrous scrap prices.”

Despite these scrap price dips, all of the current pricing, however, appears higher than historical averages so we would not suggest steel-buying organizations will see any steel price drops in the near term. In fact, The Steel Index suggests lead times for all forms of steel (with the exception of HRC which has held steady and rebar which continues to decline) have lengthened, further suggesting that recent price increases will likely stick at least for the short term. Another indicator we track involves domestic capacity utilization. For the week ending February 12, the AISI (American Iron and Steel Institute) reported capacity utilization had increased from 74.0 during the week of February 5 to 74.8%. These utilization rates appear higher (slightly) than domestic capacity utilization during 2010, which hovered in the low 70% range, though global steel production averaged 73% throughout the year.

The Steel Index reports domestic HRC pricing in the upper $820+/ton range and CRC pricing in the $910+/ton range. These represent 15+% increases for HRC and over 13.5+% increases for CRC for the past four weeks. And though HRC and CRC prices have also risen in China, (The Steel Index reports HRC at $685/ton and CRC at $795/ton vs. our own MetalMiner IndX HRC at $704/ton and CRC at $825/ton) the discrepancy in prices between the domestic and Chinese markets would suggest we might expect to see an increase in import activity (of course the discrepancy between our own MetalMiner IndX pricing which reflects local China pricing and not export pricing, makes for an altogether different analysis).

Source: US Data From Steelbenchmarker and The Steel Index, China data from MetalMiner IndX(SM)

MetalMiner IndX(SM) is a free service. You can sign up here to view daily prices.

We will continue to monitor key steel input costs and related trends for further steel price direction.

–Lisa Reisman

Steel-Black Sea billet prices rise on demand

* Black Sea billet at $610-630 a tonne

* Rebar prices up

* Wire rod demand better than for rebar

By Silvia Antonioli

LONDON, Feb 11 (Reuters) - Black Sea billet prices rose this week and were likely to increase further as demand goes back to normal but concerns remained over politial tensions in the Middle-East, traders and producers said.

Traders quoted Black Sea billet free-on-board (fob) at $610-630 a tonne, compared with sales at $600-610 a tonne fob last week.

Due to political unrest some Egyptian ports closed and a few steel and steel scrap cargoes directed to the country were diverted to other destinations and sold at lower prices in the last two weeks, traders said.

But the political situation seemed more stable this week. Egyptian mills asked their suppliers to provide them with steel scrap and steel semi product as their operations are back to normal, Turkish producers said.

"The reason for higher demand is that some customers who had to buy material in the last 2- 3 weeks waited until now as they thought prices would go down due to the problems in Egypt," a source at a steelmaker said.

Egypt and other middle-eastern and African countries import large volumes of Black Sea steel long products, which are used in contruction.

"There are more enquiries now. If nothing else happens prices will increase next week," a second steelmaker said.

"But after Egypt I am still a bit scared of these riots in Iraq, Barhain, Yemen and Lybia."

Some, however, feared that new protests in the Middle-East may continue to cripple demand.

"Yes, the sentiment is more positive and people think prices are to increase but I find it hard to believe. There is so much uncertainty in the Middle East," a UK-based billed trader said.

Billet from the CIS sold at about $610 per tonne this week, up from sales at $600-610 per tonne last week while Turkish producers achieved sale prices of $630 per tonne compared with offers at $630-640 last week.

"CIS producers have sold good volumes of billet now so they may sit out of the market for a bit and wait for higher prices," a second trader said.

Sale prices for Turkish rebar rose by $10 this week to $650-660 per tonne.

Demand for wire rod was much better than for rebar though, Turkish producers said.

"I think wire rod is selling better because it is a semi-product and steel processor are buying more on expectation of higher demand from the contruction sector," the source at the second steel mill said.

Demand for long steel products generally peaks in the second quarter of the year as the weather conditions in the northern hemisphere are more favorable for construction.

On the London Metal Exchange, the three-month billet contract FMD3=LX traded at $575 a tonne, from $553 a tonne at the close last Friday.

(Reporting by Silvia Antonioli; editing by William Hardy) (silvia.antonioli@reuters.com; +44 20 7542 0901; Reuters Messaging: silvia.antonioli.reuters.com@reuters.net))

Steel Scrap & Iron Indexes Surge 13.6% In January

Sophia Fain 1:35PM, February 18, 2011

"Another volatile week in the commodity markets as uncertainty in the Middle East, a mixed bag of economic reports in the US, and concerns about China’s efforts to cool inflation weighed on prices," according to the ISRI Friday Report.

The report said "Copper started the week with a bang, as LME official three month copper jumped to $10,124/mt on Monday before losing ground over each of the next three days...

In London this morning, base metal prices lacked direction as China announced it was raising lenders’ reserve requirements by 50 basis points following last week’s interest rate hikes. Official three month copper hovered around $4.45/lb at the LME, little changed from Thursday’s official price, while three month aluminum was up around $1.15/lb as aluminum stocks, while down slightly, remained historically high at nearly 4.6 million mt.

On Wall Street, stocks opened slightly higher ahead of the President’s Day holiday on Monday and G-20 meetings in Paris this weekend. With unrest in the Middle East on-going, gold futures for April delivery firmed around $1,386/to, while crude oil for March delivery was up around $87/bbl. The dollar strengthened somewhat against the Euro, with the common currency buying $1.356, but weakened against the pound, which was trading around $1.62 in New York this morning.

Macro news…

Another mixed bag of economic reports this week that defied many expectations. Data on the housing market, not a great engine of economic growth lately, posted some surprisingly good numbers this week as housing starts in January increased by over 75,000 to 596,000, well above the Reuter’s consensus forecast for a slight uptick to 540,000. Growth in retail sales, while still positive, came in lower than expected last month at 0.3% while industrial production contracted 0.1% versus an expected gain of 0.5%. Initial claims for unemployment also took a turn, increasing to 410,000 from the prior week’s 385,000 as continuing claims for unemployment remained above 3.9 million.

Back to the industrial production figures. While the contraction in industrial production was less than encouraging, we note the big drop in utilities while the manufacturing component, a key for the scrap industry, improved 0.3% in January following the 0.9% gain in December. And within manufacturing, fabricated metal products were up 0.3% for the month and 11.7% year-on-year.

With the Philadelphia Fed’s broadest reading for manufacturing in the region surging from 19.3 in January to 35.9 in February, (the highest reading since January 2004), there remains ample evidence that manufacturing is still very much on track. While there are heightened concerns that rising commodity prices will be increasingly passed on to consumers, there was little evidence of it in this week’s figures as the Consumer Price Index for January remained tame at 0.4% and core inflation was up only slightly to 0.2%.

Ferrous…

The Bureau of Labor Statistics report on producer prices this week highlighted the surge in ferrous scrap prices in January. According to BLS, their index for iron and steel scrap surged 13.6% higher in January and was accompanied by gains in nonferrous scrap prices as well. This would seem to confirm the scrap price increases we were hearing last month although, while domestic steel prices seem to be holding firm, ferrous scrap prices have reportedly taken a turn. According to Scrap Price Bulletin, the No. 1 HMS composite price, which had climbed as high as $440.50 per gross ton in late January, had dropped by $25/gt by mid-February as shredded scrap fell by about $20/gt.

The rebound in ferrous scrap prices in 2010 resulted in a 17% jump in the value of ferrous exports (including stainless steel scrap and alloy steel scrap) to $7.4 billion despite the 8% drop in the volume of ferrous scrap exports. The top 5 export markets for US ferrous scrap last year were (in order) Turkey, China, South Korea, Taiwan and Canada.

Nonferrous…

That BLS report on producer prices indicated aluminum scrap prices in the US jumped 7.7% in January while copper scrap prices were up a more modest 1.4% for the month. With aluminum scrap stocks still reportedly tight, scrap tags remained firm this week with sheet and cast indicated in the upper 70’s to 80 cent range, siding mostly in the low to mid 80’s, and MLC reported in the mid to upper 80’s. Despite the very large aluminum stocks in LME warehouses, official three month aluminum prices ended the week higher in London at $2,542/mt.

Speaking of LME inventories we note the rapid build-up in LME lead stocks, which surged from less than 210,000 mt at the end of December to around 298,000 mt this week. Despite the stock build-up, lead prices have held relatively firm and are up around 2% since the end of December. Nickel prices, meanwhile, are up around 15% so far this year as preliminary figures released by the International Nickel Study Group show that primary global nickel usage increased around 15% in 2010 to 1.43 million mt as usage in China jumped by over 20%."

Steelmakers raise prices again

Increase in the cost of raw materials now being passed on to customers

China's major steelmakers raised prices for a third straight month as downstream demand became stronger and raw material prices continued to rise.

Baoshan Iron &Steel Co, the nation's largest publicly traded steelmaker, raised prices for hot-rolled products by 300 yuan ($50.85) a ton and cold-rolled prices by between 260 and 300 yuan a ton, backed by strong demand from the automobile and construction industries. Baosteel supplies half of China's automotive steel.

The hike was followed by Wuhan Iron &Steel Co which raised wire bar prices by 200 to 300 yuan a ton on Monday.

The producer price index (PPI), the main gauge of inflation at the wholesale level, rose 6.6 percent in January year-on-year while the consumer price index (CPI), the main gauge of inflation, rose 4.9 percent during the same month, the National Bureau of Statistics announced on Tuesday.



Factory gate prices for the mining sector increased 13.7 percent in January year-on-year, while the factory gate price for the raw materials sector rose 10 percent year-on-year.

China's steel lobby, the China Iron and Steel Association (CISA), said in January that demand from the housing and railway sectors will further drive up steel prices this year.

Passenger car sales rose 12.6 percent in January on an annual basis, despite falling 10 percent in January from the previous month, as cities began imposing curbs on vehicle sales to combat traffic congestion, according to the Shanghai-based China Passenger Car Association.

Rebar futures on the Shanghai Futures Exchange rose as high as 5,157 yuan a ton on Tuesday, close to the record 5,230 yuan reached on Friday.

Steel production rose by 60,000 tons a day in early January compared with a month earlier, according to data from the CISA.

Domestic average steel indexes reached 194.5 on Feb 11, up 1.6 percent from the previous week, and a rise of 27.3 percent from a year ago, propelled by rising raw material costs, according to data from the Lange Steel Information Center.

Indian ore with an iron content of 63.5 percent was being offered at $197 to $199 a ton, including freight costs, on Tuesday, a rise of 12 percent this year.

The price of coking coal also surged after production in the top exporter, Australia, was disrupted by massive floods.

Chinese steel mills and traders bolstered iron ore inventories because they expect prices to rise further.

Iron ore imports surged 18 percent to a record in January, compared with December, according to the General Administration of Customs on Monday.

China Daily

Mills increase prices for March delivery

TWO major Chinese steel makers raised their main product prices for March delivery to cope with higher raw material costs, after earlier increasing their January and February prices.

Baoshan Iron and Steel Co, China's largest listed mill, said yesterday it would increase prices for hot-rolled coil by 300 yuan (US$45.5) a ton, or up to 6.7 percent, and cold-rolled coil by 260-300 yuan a ton, or up to 4.9 percent.

One day earlier, Wuhan Iron and Steel Co unveiled a rise of around 300 yuan for its main products next month.

Domestic mills have been forced to raise product prices to pass on rising costs of iron ore and coking coal to downstream industries.

The spot price for Indian iron ore was quoted above US$190 per ton including freight to China, a jump of more than 50 percent from July last year, according to industry consultant Custeel. 

"Steel makers are now in the late stage of the current price hike cycle," Custeel analysts Hu Yanping and Hu Zhengwu wrote in a note.

Stable raw material prices and downstream demand may help steel prices to rise, albeit at a slower pace, in the coming months, they said.

Iron ore imports reached a record high of 68.97 million tons in January, up 18.8 percent from December and 48 percent from a year earlier, according to the General Administration of Customs.

The imports surged as traders and mills built up stocks on fears of higher ore prices, according to analysts.

Source:Shanghai Daily

UPDATE 1-China daily steel output averaged 1.7 mln T in Jan

BEIJING Feb 16 (Reuters) - China produced a daily average of 1.703 million tonnes of crude steel in January, data from the China Iron and Steel Association (CISA) showed on Wednesday.

The figure was up only fractionally from the 1.699 million tonnes per day produced in December.

Production is likely to drop in February, largely because of the week-long Chinese lunar new year holiday, analysts said.

"Steel production in February might fall slightly due to slower operation rates during the spring festival, and a few steel mills have met some technical interruptions at their blast furnaces," said Hu Yanping, analyst with the Custeel consultancy.

Following the completion of an energy efficiency campaign over the second half of 2010, which forced many steel mills to reduce output or close down, many in the industry predicted a significant surge in output over January.

Daily production reached 1.79 million tonnes in the first 10 days of the new year, but fell back to 1.695 million tonnes over the Jan. 11-20 period as a number of big mills began overhauls.

Output over Jan. 21-31 recovered slightly to reach 1.709 million tonnes per day, CISA said. (Reporting by Ruby Lian and David Stanway, Editing by Chris Lewis and Jonathan Hopfner)

China’s Iron Ore Imports May Fall for Second Year, Mysteel Says

Iron ore imports by China, the world’s biggest buyer, may fall for a second year in 2011 even as January purchases surged, as record prices spur output from domestic mines, according to Mysteel Research Institute.

The price of 62 percent-iron ore arriving at China’s Tianjin port rose to $190.60 a ton yesterday, the highest level since the data became available in November 2008, according to The Steel Index. China’s imports may fall “marginally” this year after dropping 1.4 percent in 2010, Xu Xiangchun, chief analyst with Mysteel, said by phone from Beijing.

“I am more inclined to say that imports may fall if prices stay above $180 because Chinese mines are very active in production,” Xu said.

Iron ore imports fell last year for the first time since 1998 to 618.6 million tons because China took measures to rein in property speculations and as domestic mines increased output. Imports rose 48 percent to a record last month due to recovering steel production and restocking amid expectation prices may rise.

Lower imports and higher iron output last year indicated that Chinese steelmakers consumed 70 million metric tons more of iron ore from domestic mines in 2010 than in 2009, Xu said.

China invested 330 billion yuan ($51 billion) in domestic iron ore mines in the past five years and may achieve more than 100 million tons a year of concentrate production, with some of the new capacity coming online this and next year, Xu said. China may invest another 100 billion yuan this year, he said.

“We will see the imports post a big drop at some point. We are hearing the record prices have impeded some buying interests,” he said.

Low Growth

China’s steel production may rise 5 percent to 660 million metric tons this year, the Ministry of Industry and Information Technology said today in a statement. Output gained 9.3 percent in 2010 after rising 14 percent in 2009.

The nation’s steel industry, the world’s biggest, has “entered an era of low growth” amid slowing capacity expansion and higher production costs, China International Capital Corp. analyst Luo Wei said Dec. 15.

Cash steel prices in China fell 0.3 percent today, the first drop this year, from a more-than-two-year high of 4,961 yuan on Feb. 15, according to the Beijing Antaike Information Development Co. A price correction may occur as soon as March because private steelmakers have been running at full capacity, leading to higher stockpiles, Mirae Asset Securities Ltd. analyst Henry Liu said in a note yesterday.

Xu’s forecast is echoed by the industry ministry, which said China may keep iron ore imports at about 600 million tons this year, indicating a projected 3 percent drop.

--Helen Yuan. Editors: Alan Soughley, Indranil Ghosh

To contact the Bloomberg News staff on this story Helen Yuan in Shanghai athyuan@bloomberg.net

To contact the editor responsible for this story: Andrew Hobbs at ahobbs4@bloomberg.net.

Analysis: China's plan for steel super firms seen floundering

(Reuters) - China is likely to fail in its drive for state-owned steel giants to swallow small mills and create iron ore super buyers to wring better prices from leading sellers Vale (VALE5.SA), Rio Tinto (BHP.AX) and BHP Billiton (BHP.AX).

Failure to get the three major iron ore suppliers to agree to price cuts in 2009 was blamed on small mills breaking ranks -- a mistake China's latest "five-year plan" aims to fix by bringing more than 60 percent of national steel capacity under the control of its top ten producers by 2015.

"China still doesn't have sufficient control over raw materials, so this isn't going to be an issue for firms like BHP and Rio," said James Wilson, an industry analyst with RBS.

China is not alone in seeking consolidation to lower raw material costs and stamp out over capacity, as demonstrated by a mega-merger planned byJapan's Nippon Steel Corp (5401.T) and Sumitomo Metal Industries (5405.T) that eyes the same goals.

China is the top customer for BHP, Rio and Vale, which all moved to quarterly price indexes in 2010 based on spot transactions in China. Now, however, BHP is pushing the envelope - asking Chinese clients to buy materials based on the average Platts index price one month before shipping.

Industry body the China Iron and Steel Association, keenly aware that the way prices are calculated can affect billions of dollars of imports, hopes to thwart any move to spot pricing by using its top buyer spot more aggressively.

But resistance is seen as futile.

"They've got to come to terms with the fact that demand for the product is increasing significantly, and not just from China," Wilson said.

COSMETIC GESTURES

Cutting total steel capacity in China, variously estimated at 720 million to 750 million tonnes a year, roughly more than 100 million tonnes over 2010's output of 626.6 million tonnes, by forcing mergers and shutdowns may not work as well as market forces.

"The government-led administrative push will not work, and the best way is to allow the market to play a major role in mergers and acquisitions," said Henry Liu, head of commodity research at Mirae Assets Securities in Hong Kong.

China's industry ministry last month said the top ten steel mills produced 48.1 percent of national output last year, up 3.6 percentage points from 2009 and close to its original target of 50 percent.

But analysts say that up to now, many of the consolidations have been cosmetic gestures to appease regulators.

"The majority of mergers and acquisitions have been sought to create a simple sum of output, and haven't met the real target of regrouping assets and jointly utilizing resources," said Du Hui with China's Qilu Securities.

NATIONAL VS LOCAL

Spot Iron ore prices extend record

Asian steelmakers begin to increase product prices as spot prices for iron ore rose to new highs and offers for high grade Indian ore broke $200 per tonne.

Author: Manolo Serapio Jr
Posted:  Monday , 14 Feb 2011 

SINGAPORE (REUTERS)  - 

Spot iron ore prices rose to fresh record highs and offers for high-grade Indian ore hit $200 per tonne on Tuesday, prompting Asian steelmakers to increase product prices.

Iron ore prices have risen more than 12 percent this year, after soaring over 40 percent in 2010, due to tight Indian supplies and firm demand from top importer China.

Prices of coking coal, another steelmaking ingredient, have also surged after massive flooding disrupted shipments and production in Australia.

To cover rising costs, Nippon Steel Corp , the world's fourth-biggest steelmaker, raised H-beam steel prices for the third month in a row in February.

Baoshan Iron and Steel , China's biggest listed steelmaker, increased product prices for March bookings, also the third month it was raising rates. Wuhan Iron & Steel Co Ltd , China's third-largest producer, on Monday announced a similar price hike.

Rebar futures on the Shanghai Futures Exchange rose as high as 5,196 yuan per tonne on Tuesday morning, near the record 5,230 yuan hit on Friday.

Iron ore price indexes, which global miners like Vale and Rio Tinto use in setting quarterly contract rates, rose to record highs on Monday.

Platts' 62 percent iron ore index IODBZ00-PLT rose $1.50 to $192.50 a tonne, cost and freight delivered to China, and Steel Index 62 percent benchmark .IO62-CNI=SI edged up 60 cents to $189.50.

Metal Bulletin's 62 percent gauge .IO62-CNO=MB gained $1.16 to $189.28.

NERVOUSNESS

Indian ore with 63.5 percent iron content was being offered at $197-$199 a tonne, including freight cost to China, on Tuesday, although bigger miners were quoting prices above $200, said Chinese consultancy Mysteel.

"We've seen one trading company bought one 63.5 percent cargo from India at $200 per tonne," said an iron ore trader in Singapore.

"There's nervousness in the market as prices continue to go up but I think with the Indian shortages, the market will remain firm."

A large number of Chinese steel mills have returned to the market to buy material after the Lunar New Year break, said an iron ore trader in eastern China.

"We are expecting prices to hit $220 per tonne in the near future, but it might struggle to achieve that," he added.

India's Supreme Court allowed traders to ship up to 400,000 tonnes of ore that had been cleared in Karnataka for export before a ban was imposed in July, but moved a hearing on the state ban to April 4.

Karnataka accounts for about a quarter of India's annual iron ore exports of around 100 million tonnes. India is the world's No. 3 supplier of the steelmaking material.

The forward swaps market rose on Monday, although prices remained at discount to spot, pointing to caution among swap players on the near-term direction for prices.

The Singapore Exchange-cleared February contract gained 29 cents to $188.54 a tonne, March was up 13 cents at $181.75 and April added 31 cents to $172.06. (Additional reporting by Ruby Lian in SHANGHAI; Editing by Ed Lane)

© Thomson Reuters 2011 All rights reserved

Global Commodity Watch - February 2011

Non-energy commodity prices rose for a seventh straight month in January, up 4.3 percent, partly due to depreciation of the dollar—down 1.1 percent versus the euro. There were strong gains in nearly all main indices.

Crude oil prices increased 3.0 percent in January, up for a sixth month, averaging $92.7/bbl. However, there has been a large divergence between main market crude prices. The price of internationally traded Brent topped $102/bbl in early February on concerns about supply disruptions emanating from political unrest in Egypt and contagion to other oil producing countries. Meanwhile, the price of WTI has fallen $15/bbl below Brent due to a build-up of inventories in the U.S. mid-continent resulting from increased crude flows from Canada. The situation is expected to persist until new pipeline capacity is available to move crude to the U.S. Gulf coast (2013). Globally, falling stocks and strong demand—in part due to cold weather—have underpinned crude prices.

Coal prices soared 18.9 percent in January due to devastating floods in the Queensland state of Australia that disrupted mines, transport and ports, with further disruption likely from recent cyclones. Rain and adverse weather has affected supplies from other major producing countries (Colombia, Indonesia, Russia and South Africa), while demand in the northern hemisphere has been bolstered by cold weather.

Base metal prices rose 4.6 percent in January, up for a seventh straight month, on expectations of strong global growth, although there is some concern of slowing in China. In early February, tin and copper prices surged to record nominal highs, as they are the two metals that are most supply-constrained in the near term. Lead prices rose 7.8 percent in January, despite rising stocks, on strong battery demand for replacement and new vehicles. Nickel prices increased 6.4 percent on strong stainless steel demand and lower ore imports into China from Indonesia and Philippines. Tin prices were up 5.0 percent due to supply shortfalls from Indonesia, while copper prices rose 4.5 percent because of constrained mine supply growth.

Coal  prices  soared 18.9 percent  due to supply disruptions from flooding in Australia that affected rail transport and mine production.
Lead prices rose  7.8 percent, despite rising inventories, on strong battery demand.
Nickel  prices rose  6.4 percent on  declining stocks, strong stainless steel demand,  and reduced imports into China from Indonesia and the Philippines as wet weather curbed output.
Tin prices  gained 5.0 percent on continued shortfalls in Indonesian output from heavy rains, and expectations of another deficit in 2011.
Copper prices rose  4.5 percent, and to  record nominal highs above $10,000/ton in early February, on expectations of  market deficits this year due to constraints on mine supply growth.

Selected Commodity Prices, Nominal US dollars, 2005-2010