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Lower long-term steel prices on excess global steel production: Commerzbank

London — Lower steel prices longer term due to excess steel supplies over the next two years are expected, investment bank Commerzbank said Wednesday.

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An erosion in steel prices, after prices in China rebounded as some mills exited a winter regime of output cuts, may reduce the sustainability of current high steel margins. Steel prices and higher output rates have supported steel raw materials prices into China and demand since last year.

Longer term global oversupply in steel, after the World Steel Association trimmed steel demand by volume for 2018 and 2019, may depress steel prices, Commerzbank said in a note Wednesday, citing Worldsteel's latest Short Range Outlook published Tuesday.

Commerzbank said Worldsteel's latest assumed steel demand growth rates had increased, after 2017 steel demand was revised down, but weaker absolute steel demand meant that, "all things being equal, we believe this points to lastingly lower steel prices."

"Steel supply exceeded demand by around 100 million mt last year, and based on the 1%/year average long-term rate of production growth assumed by the association, a good 87 million mt and almost 94 million mt too much steel would be produced worldwide this year and next year, respectively," Commerzbank said.

Worldsteel estimates no further steel demand growth this year in China, and a decline in Chinese steel demand by 2% in 2019 as construction-related demand falls.

Higher steel prices in China since March, epecially for HRC and other flat steel, have led spreads betweeen imported raw materials of iron ore and coking coal to lift.

The S&P Global Platts China HRC export spread, which measures the difference between HRC steel export prices and imports of iron ore with coking coal, in March rose to a new monthly record of $348.54/mt FOB China. The raw materials costs are based on the average of spot China CFR prices and quantities used per metric ton of hot metal.

--Hector Forster, hector.forster@spglobal.com
--Edited by Maurice Geller, maurice.geller@spglobal.com