Kyoei Steel testing the price-rise waters again?

"Regarding domestic construction demand, although there are plans for large-scale projects in the future, the movement of small- and medium-sized projects continues to be sluggish," Kyoei said in a statement. "In such an environment, electric furnace manufacturers are facing a decrease in production in addition to rising costs such as electricity bills, transportation costs, and labour costs."

At prevailing selling prices, "it is inevitable" that the mini-mills' profitability will deteriorate, the Osaka-based mill said, so in order to maintain stable production, it was lifting prices of Yamaguchi products by Yen 3,000/t.

The surprise announcement is significant for two reasons. The first is that back in mid-August when prices of construction longs were still soft, Kyoei had announced that it was rolling over its rebar prices for September, only to suddenly declare two weeks later on September 2 that it was lifting prices at Yamaguchi by Yen 5,000/t, arguing that rising costs were making business conditions for mini-mills "tougher day by day," as reported.

At that time, Kyoei had warned that it was considering raising prices of other steel items such as flat bars and angles but had made no mention of lifting rebar prices at its other works – at Hirakata in Osaka, in Nagoya in central Japan, and in Ibaraki, north of Tokyo.

Yet a few days later, on September 11, in what Kyoei called a 'mid-term' announcement, it raised rebar prices at these works by Yen 5,000/t, together with those at Yamaguchi again, as reported.

The dates are important because just five days later Kyoei's rival, Tokyo Steel Manufacturing, announced that it was slashing prices of almost its entire product catalogue for October sales by as much as Yen 12,000/t. Some market observers saw Tokyo Steel's move as rebuking Kyoei for daring to lead long-product pricing in the Japanese market when this role had always been Tokyo Steel's.

Now, more than two months later and after Kyoei had raised prices by a further Yen 2,000/t, its strategy of steadily lifting prices has proven successful as other mills such as Yamato Steel, integrated giant Nippon Steel – and belatedly, Tokyo Steel – have also lifted theirs.

"Almost all steel manufacturers are selling hard, and major distribution companies are also poised to raise prices from December," industry daily the Tekko Shimbun reported in a recent commentary. "Special-shaped steel bars (rebars) are looking for an upward price (and) in response to the successive increases in the list prices of rebar manufacturers, dealers have judged that the price has bottomed out," it observed.

Which brings us to Kyoei's Thursday announcement that one Tokyo-based mini-mill industry source suggested was Kyoei again using price increases of Yamaguchi products to test whether the market is ready to accept another round of price increases. "Kyoei always starts moving with Yamaguchi!" the source quipped.

The second reason why Thursday's rise is significant is because just two days earlier on Tuesday this week, Kyoei had issued a statement implying that it would be holding prices for December. "The Company will reduce production to penetrate the price increases so far and improve the balance between supply and demand," the statement said.

Market watchers interpreted this as Kyoei trying to show customers that market prices are still strengthening – without actually raising its own prices further. Now the company is making its determination clearer by raising them at Yamaguchi.

Written by Russ McCulloch, russ.mcculloch@mysteel.com

Edited by Alyssa Ren, rentingting@mysteel.com