Forecasts and market analysis based on price assessments from Fastmarkets MB and Fastmarkets AMM

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February 2020 | Steel Forecaster

Margins Analysis, Economic Indicators: February 2020

An analysis of margins, economic indicators and capacity development for the month of February 2020

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Differentials to Chinese HRC prices narrow

Last year the differential of European domestic over Chinese export HRC prices shrunk to just $31 on average, a 56% fall from the long-term value of $70. Although European producers were pushing through higher prices since the end of last year, they were still lagging behind price rises in China, and in mid-January European prices were even briefly set at a discount to China. CIS exporters traditionally closely follow price trends set by Chinese mills, and although in October-November last year CIS material was trading with $50-60 discounts, the differential for the year as a whole narrowed to $13. Sharp falls in US HRC prices meant that the differential to China declined significantly in 2019, but at $174 it was close to $176 registered in 2017, prior to Section 232 measures in the US. All prices are quoted on a $ per tonne basis.


Premium between a steel product and a steel raw material

Extra above the cost of the feedstock for the product next along the conversion chain

Difference between same type of product from different regions/benchmarks

Economic Indicators

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Activity in the US construction industry slowed down in 2019 compared with 2018, with estimated growth rates of 3.1% and 2.0% year on year respectively according to Oxford Economics (OE).

The latest data has shown that US housing starts jumped by 17% month on month in December, the fastest growth in over three years, with increases in both single and multi-family buildings. For 2019 as a whole, new housing starts totalled 1.29 million units, a 3.2% annual rise. However, this strength in the residential construction sector has not been replicated by numbers in the non-residential sector. This is negative for local long steel producers, as residential construction can have limited exposure to long steel products and have more impact on flat steel producers via sales of domestic appliances for example.

The outlook for construction in 2020 is positive, with overall growth reaching 2.7%, and more importantly activity picking up across all sectors. Civil engineering is expected to grow by 1.8%, up from 0.5% last year.

The automotive production in the US totalled 10.59 million units last year, a 3.4% fall compared with 2018, with output registering year-on-year declines in the last five months of the year. The situation was exacerbated by the strike at GM facilities at the end of the year, with estimates that the loss in production reached 300,000 vehicles, and not all of it can be made up.

But it is expected that the industry will return to growth in 2020, with car production rising by 3.8% this year. There are planned new plants opening and new models launches, which should support output growth.

Capacity developments

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