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Commodities

Steel prices sink to 3-year low as trade war, weak auto sales take toll

Price of hot-rolled coils in East Asian fall to around $480 per ton

East Asian exporters are finding it hard to make a profit as steel sheet prices fall.    © Reuters

TOKYO -- The international price of hot-rolled steel coils, used in the production of motor vehicles and machinery, have fallen to a three-year low, dragged down by the protracted Sino-U. S. trade war and China's economic slowdown.

In East Asia export markets such as Japan, South Korea, Taiwan and China, coils made by Japanese and other manufacturers dropped to around $480 per ton in early November, including costs such as freight. That price was down about 7% from a month earlier. Compared with the highest level this year, reached in the spring, it was down 16%.

The tumble in the prices for these steel sheets reflect the slowing global production of automobiles and an uncertain outlook for the industry. Hot-rolled coils -- steel sheets rolled at a high temperature -- are also widely used in the production of home appliances and construction materials.

Prices showed an upward trend in the spring but began to fall shortly after when an economic slowdown in China, the world's largest consumer of hot-rolled coils, became evident. Subsequent upturns were not sustained and prices have continued to edge down.

Price falls began to accelerate again in early September when the U.S. kicked off a fourth round of punitive tariffs against China, arousing concerns about a deeper economic downturn and weakening demand for steel products in the world's second largest economy.

"Slow freight movements" in the Chinese market after an extended holiday early October to commemorate the founding of modern China are also hurting the sector, said an official at a Japanese trading house that specializes in steel products.

Manufacturing and other business operations usually slow in China just before the October holidays but pick up afterward. This year, however, demand for steel products has not risen as much as expected, the official said.

In fact, the Purchasing Managers' Index fell below 50 in October, marking the sixth straight month of contraction, according to the National Bureau of Statistics. New car sales dropped in September for the 15th consecutive month.

The industry has also not been helped by a contraction in steel demand in Europe and Turkey that has caused a glut in Russia, Turkey and India. These surplus products are then sometimes dumped in Southeast Asia. As a result, prices taken a further hit.

"Prices continue to fall due in part to Chinese steel-makers' cuts to counter low prices of Russian-made products," said an official at a Japanese trading house. Some deals in Asia have concluded below $450 per ton, he added.

Making a profit is also increasingly hard for producers who are facing high iron ore prices. Some Japanese steel-makers are now holding off deals in Asia to avoid selling at a loss, analysts said.

The story is the same in the U.S. According to American research company SteelBenchmarker, steel prices are around $560 per ton, down some 10% from a year earlier and dropping below $600 for the first time in about three years.

Prices rose to about $1,000 per ton in the summer of 2018 thanks to additional tariffs slapped on steel imports by President Donald Trump. But they began to fall as supply surged with an increase in production by U.S. steel-makers.

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