Steel strategists at Nomura see a reversal of supply side conditions by the Q4 driving HRC steel back to USD 600 per tonnes, versus the current level of around USD 630 per tonnes.

Mr Curt Woodworth analyst said that "US steel and scrap prices recently reached a 3 year low in May and have since recovered sharply, driven by supply outages and a lull in import flows from the negative arbitrage condition in 2Q. While various supply side disruptions have arrested the YTD price decline, the key question is whether these prices will last and, more importantly, what is fair value for US HRC in the context of quickly shifting global cost curves as seaborne iron ore and met coal prices correct lower.”

Mr Woodworth said that “We believe sharply contracting margins globally is a function of increased Chinese supply impacting margins in Asia and a much flatter cost curve leveling the playing field as bulk material prices contract. We believe that the recent negative inflection point in the non-residential construction market is likely to represent a cyclical pause before the next leg of growth ensues, which is likely to occur in early 2014 in our view.”

He said that “We believe global steel prices are driven by marginal cost dynamics with iron ore the key input. We continue to like Buy-rated STLD/NUE; however, we do see some risks in the short run if non-residential data and long product metal margins remain weak."