Constantly increasing domestic steel capacity is undermining steel prices in the Chinese flat products segment. In Japan, oversupply has been a problem in recent months. The mills are now considering steps to rectify the situation by cutting back on output.

Similar pictures are being reported in South Korea and Taiwan.

Oversupply across the region is likely to lead to further price reductions over the next few months for all commercial grades of steel.

Cuts in production are anticipated in the final quarter in Japan, South Korea and Taiwan.

This should signal the mills intent to balance supply and demand by the end of the year.

We forecast a fall in transaction prices over the next three months - followed by an upturn in 2006.

This assumes that the Chinese will not flood the region with their excess supply but forward some of it to the EU and North America.

A modest price rise is anticipated during the first half of next year.

In the long products category average prices actually went up over the past two months - partly on the back of stronger international scrap prices.

The increases in raw material costs in Asia have been less dramatic than in North America and the EU.

Excess supply is likely to be a key factor in the pricing scene over the next six months.

With the exception of China, demand is quite mediocre in the building and construction segments across the region.

We, therefore, forecast modest price declines up to the early months of next year.

This should be followed by a revival after the Chinese New Year if the mills are able to export some of their oversupply to the US market, to meet the anticipated upturn in demand for construction in that country.

Taiwanese and Japanese demand may also be improved at that time.

However, in the background, there is always the fear of too much supply from the Chinese mills dampening the prospects for a price revival in the region.

* Source: MEPS - Steel Prices On-Line (regional steel price tables and forecasts).