Many market participants hold the view that rebar prices are mainly determined by demand - i.e. construction activity - and thus are very seasonal. However, German rebar prices tumbled in Q2 2017 despite booming construction activity in the country. A closer analysis shows that supply-side factors, principally import competition, and input costs such as scrap prices often outweigh the effect of demand.
Price falls amidst booming demand The German construction sector is experiencing an extraordinary year. The order books of service centres and mills are completely full and some market participants are even reporting delivery problems. The production index of the German construction industry measured by the Federal Statistical Office of Germany hit its highest level in two decades. The unadjusted index reached 152.8 in May (the highest level since September 1997) whereas the seasonally and calendar-adjusted index reached 140.2 in March (the highest level since September 1996). According to wide-spread belief, rebar prices should have increased significantly from the calm winter months towards summer when construction demand is booming. Indeed, in the period 2010-2016, the average rebar price in the second quarter was €21 /t higher than the average price in the first quarter (see figure 1). This fact seems to strongly support the notion that rebar prices are driven by seasonal demand. However, 2017 appears to be fundamentally different: prices fell from €500 /t in February to €450 /t in June. This insight aims to establish a better understanding of the main drivers of rebar prices. It will demonstrate that rebar price movements are not strongly influenced by seasonal demand. Instead, they are mainly driven by changes in global scrap prices and import competition.
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