There is a softening of the hot-rolled coils (HRC) prices. Nothing of that sort has been reported for other flat-rolled steel products - cold rolled and galvanised sheets (CR and GP) for example. The long products are doing much better.

The reported drop in the global export prices of hot-rolled coils is about $10 per tonne. There are reports of the Japanese export offers to China dropping to $270 per tonne. The Chinese mills with increased production are finding it tough to get the prices they have sought. The CIS exporters are also finding any further increases difficult and in some cases reportedly have given way to buyers' demands for cuts for third quarter deliveries.

While not accepting a price increase of slabs from CIS countries, Brazil, the largest slab buyer in the US; California Steel has reported that the third quarter prospects are not conducive for any increases in slab prices.

This is a clear indication of growing uncertainty over the third quarter market in the US. They have apparently struck deals with other players around the world at lower prices. There are reports of traders in the US getting stuck with imported cargoes of both HRC and CR sheets. Imports of HRC in February were three times those in the same month last year. The CR sheets imports also doubled. The March imports, although dipped, remained fairly high.

These are isolated events, but seen together, map a future scenario that may be a little disturbing and certainly not as rosy as generally projected. There are possibilities now gaining strength of a drop in third quarter delivery prices of hot rolled coils. The immense risk involved with this prediction notwithstanding, certain signals were received much earlier of a possible slowdown of the hot-rolled coils market due to increased supply.

The production of HRC has increased phenomenally in every major country or region producing it. The CIS countries, Japan, India, Europe, Brazil, China and the US. Some of them did not have proportionate increase in their domestic demand. For example, Japan's first quarter production of HRC was up about 42 per cent and their apparent consumption grew only 3.5 per cent.

Therefore, they had more HRC to throw into the world market. China' s production is getting closer to her domestic demand. Production in the country rose 14.2 per cent, while consumption grew at about 7.5 per cent. The picture is not much different in the European Union with production increasing by about 11.5 per cent at a time when domestic consumption has crept up by a low 6.1 per cent. The gap is closing in the US too. Despite stronger demand at home, the Indian companies will have a lot to export.

The Asean countries have already seen in the first quarter their production rising 42.6 per cent against a consumption growth of about 33 per cent.Steel in general is not an item that is consumed the day it is produced. There is a lag between these two events. There is also a lag between production and delivery. That may vary between a week to a quarter or more.

In international trading involving ocean freight, the delivery time can be anything between a month and a quarter. These are rather well known facts, brought in here merely to examine the current trends in production and consumption. The massive consumption in the first quarter was supported by production earlier and simultaneous depletion of inventories. The output of the first quarter will mainly back restocking to some extent and consumption in the second.

Although the demand in the second quarter till now and that for the coming months seem strong, the position may just tilt a little from the middle of the quarter, that is by May. There are definite reports of excess booking done by overzealous and speculative traders in the past. There are reports now of many of them finding it hard to get the prices they expected.

Therefore, the possibility of cancellation of orders and panic sales are also not ruled out. In such an event, the prices of hot rolled coils may drop by a larger margin, which will have a much larger impact on the fourth quarter transactions.

Interestingly, for cold-rolled and galvanised sheets also, production in major areas has outstripped demand. More importantly, there is a massive increase in exports of cold rolled sheets from Russia. Although the Russians are getting better prices, the same are still lower than those for comparable products from other countries. The prices from Ukraine are much lower but their deliveries are uncertain. Therefore, even if the overall demand remains strong (not volatile), the prices may not increase in proportion. In any case, considering the strength of these markets at the moment, there is no possibility of an imminent collapse. But, HRC remains with uncertainty if not under a little threat of losing ground.

The US steel industry, however, is looking at the prospects differently. They have already announced substantial increases (around $20) on HRC for July deliveries. One has to wait and see if they can hold on to such demands, especially when imports are increasing fast. The US domestic prices are still a neat $40 per tonne higher than in most parts of the open world.

Therefore, if the markets in the rest of the world remain under pressure, the US steel makers should be happy if the current price levels are maintained let alone further increases.

(The author is convenor of Steel Exporters' Forum and the views expressed here are his own)