FATE OF WESTERN STAINLESS STEEL SECTOR HEAVILY DEPENDENT ON ASIAN DEMAND - MEPS

The traditional fourth quarter slowdown in stainless steel ordering activity is upon us. Western companies all along the supply chain will endeavour to minimise their inventories at the end of the calendar year - which, for many, will coincide with the preparation of their annual accounts. As many organisations take extended breaks over the Christmas and New Year period, buyers will also have to plan around this stoppage in production.

This will be followed, in February, by the Chinese New Year. Traders in the region will cut back on their orders from the mills, as they prefer to hold cash rather than inventory, over the holiday period.

MEPS have reported that business activity in much of the world has been acceptable though not spectacular, this year. Observers are now asking when the real recovery will begin. Of course, as we have explained in the production forecasts in this publication, global stainless output continues to reach new highs, year-on-year, due to growth in the developing markets, especially China. In Europe, though, many market players are predicting an upturn late in the first trimester of 2011. A cynic might say that this recovery seems to have been three or four months away for the past two years.

Germany is very much the driver of European growth and its economy appears to be going from strength to strength. The recently published Ifo Business Climate Index for November shows that business confidence in the country is at its highest level since reunification. While most of Europe has struggled since the onset of the financial crisis, German manufacturing has gained from the demand for its goods from the emerging economies of the Far East. Luxury cars, domestic appliances and consumer electrical goods from Germany all have strong reputations in Asia and are regarded, to some extent, as status symbols.

The other European economy that has outperformed its neighbours in recent times is Sweden. The country's industry has benefited from its involvement in the German automotive supply chain. Sweden also has its own impressive niche in the developing market, with sales of its heavy trucks booming in Brazil.

Japan, too, relies heavily on the development of the Chinese economy, which is its greatest export market. Sales to its neighbour have helped to offset the effect of the yen's recent strengthening against the U.S. dollar. However, the further recovery of Japan's fortunes will also depend on an upturn in demand from Europe and North America.

The growth in global stainless steel output in the medium term is guaranteed by burgeoning demand from the emerging markets but where does the future lie for producers in "The West"? It is unlikely that their own industrial bases will recover sufficiently to consume their stainless production at pre-crisis levels for some years ahead. Will they tailor the size of their operations to suit the requirements of their home markets or will they try to compete head on with domestic manufacturers in the new economic superpowers?

Source: MEPS - Stainless Steel Review - click here for a free sample copy.

Now Available - MEPS Steel Prices On-Line is now forecasting stainless steel prices. Click here for more details