ALL PRODUCTS CARBON STEEL PRICE FORECAST- LATEST FORECASTS FROM MEPS

WORLD (GLOBAL) - ALL PRODUCTS COMPOSITE CARBON STEEL PRICE FORECAST

The MEPS – World All Products Average transaction price dropped in November by over $US140 per tonne as mills in all regions struggled to secure orders. This was lower than the figure we predicted in october 2008. Large declines in raw material costs pushed world average long product transaction prices downwards. Many customers stopped purchasing due to high inventories. Exports from East to West of steel products and manufactured goods continued to fall due to the ongoing economic crisis. Consequently, Asian mill order books contracted further. This led to increased output cuts, with crude steel production in China recording significant reductions in September and October. High priced inventories in the EU and US were sold off at very low values as distributors attempted to run stock levels down before the year end. This negatively affected the volume of new purchases for forward delivery. Consequently, offers from steel makers were reduced. Credit problems continued to cause difficulties across many end user sectors. The construction sector in most countries researched remains extremely weak.

World transaction values are forecast to decline further in the short term as customers continue to put purchases on hold. Recent decreases in raw material costs are likely to push selling figures for all long categories lower next month. Continued stoppages in many manufacturing industries are likely to put additional downward pressure on flat products demand.

Most steel makers are continuing with output cuts over the next few months to meet lower consumption, particularly from the construction sector. This is predicted to lead to a re-balancing of supply and demand and should help to stabilise world prices in the first quarter. Prices are then forecast to move higher in the second trimester. Scrap costs are also likely to increase, which should have a positive influence on all long products prices. However, the world economic crisis could limit these advances. Banks are expected to control lending. As a result, purchasing by steel buyers will, almost certainly, continue to be restricted. We believe that prices are likely to drift downwards during the final few months of 2009.

EU – ALL PRODUCTS COMPOSITE CARBON STEEL PRICE FORECAST

Current price levels are hard to verify because very few forward orders are being placed. In these difficult times, MEPS have collected prices for transactions between steel producers and their customers - often from existing stocks on short term deliveries. Keeping in line with our normal practice, we have not included in our figures some of the “one off fire sale” deals which have been settled in the market during recent weeks at figures substantially below replacement value or cost of production.

The MEPS November - EU All Products average transaction value moved down by over €100 per tonne as significant falls were noted across all categories. This was a greater reduction than forecast in October 2008. Low demand, coupled with decreasing raw material costs, led many distributors and end users to restrict purchases, with many being wary of buying in a falling market. Large declines in scrap values pushed EU average long products transaction prices down considerably. Credit problems continued to cause difficulties across the manufacturing and construction sectors. Domestic steelmakers are cutting production in an attempt to re-balance supply and demand

Lower raw material costs, coupled with reduced purchasing by end users and distributors, are expected to put downward pressure on all steel product transaction values in the short term. We predict prices in the first quarter of 2009 to be at or near the bottom of the current price cycle. Sizeable output cuts by many producers in the region are likely to lead to a re-balancing of supply and demand. Scrap costs are also likely to increase. This should push transaction figures higher by the second trimester. However, the world economic crisis could limit these advances. Banks are expected to exert stringent control on lending. As a result, the purchasing power of many steel buyers will, almost certainly, continue to be restricted. We believe that selling figures could then drift downwards after the summer period.

NORTH AMERICA – ALL PRODUCTS COMPOSITE CARBON STEEL PRICE FORECAST

The MEPS – November North American All Products average transaction plunged by over $US120 per tonne as local mills struggled to secure orders. This was a bigger fall than we had predicted last month. High priced inventories were sold off at very low values as distributors attempted to run stock levels down before the year end. This negatively affected the volume of new purchases for forward delivery. Consequently, domestic steel makers reduced offer prices in a bid to stimulate buying activity. Declining scrap costs also put additional negative pressure on selling figures.

Further decreases in transaction values are envisaged for all flat products in the short term, partly due to seasonal factors. Lower scrap values in November could also cause transaction prices for all long products to fall significantly next month. However, the domestic mills may not pass on all of this reduction as costs look set to rise again in the short term. Import offers are likely to become increasingly more attractive, particularly if the US Dollar continues to strengthen. This, coupled with plant stoppages by many manufacturing industries and further weakening across the construction sector, could put additional downward pressure on all selling figures.

We predict that the steel price collapse will come to an end early in the New Year. Output cuts by many local producers will lead to restricted supply and help to push up transaction values during the early months of 2009. Scrap costs are also likely to move upwards in the first trimester. However, pressure from imports could limit advances in domestic selling figures.

ASIA – ALL PRODUCTS COMPOSITE CARBON STEEL PRICE FORECAST

The MEPS – Asian All Products Average transaction price moved down by approximately $US120 per tonne in November 2008. This was a greater decline than we predicted in Ocotber 2008. Exports from East to West of both steel products and manufactured goods continued to fall due to the ongoing economic crisis. Consequently, domestic mill order books contracted further. Inventory levels also remain high. A lot of construction related projects have been cancelled or postponed. This has led to further output cuts across the continent, with crude steel production in China recording significant reductions since September this year.

Recent decreases in raw material costs, coupled with weakening demand, are likely to push transaction values for all products lower next month. Several steel makers in the region have already announced price cuts for December 2008, with many more expected to follow soon. High inventory levels at both distributors and producers are likely to limit purchases in the short term. Consequently, domestic mill order books could remain poor.

We believe that the bottom of the current price cycle will occur early in 2009. Many steel makers are continuing with output cuts over the next few months to meet lower consumption. As such, supply and demand could be re-balanced by the first quarter. This should help to stabilise selling figures. Scrap costs are showing signs of a modest recovery, which are likely to feed through into steel prices over the next few months. Demand is also expected to pick up after the Chinese New Year, providing an opportunity for mills to force through advances in transaction values. However, the global financial crisis may limit this growth over this period. We believe that prices could then drift downwards during the final trimester of 2008. The Chinese government's new economic stimulus plan should provide a welcome boost for local construction and subsequent steel demand in the longer term.