In November, the world All Products price fell back slightly more
than anticipated due to significant reductions in Asian values due
to oversupply. EU values fell as a result of poor demand in the long
products segment and weaker long product figures. North American
flat product prices were stronger on the back of higher scrap costs.
Concerns about global oversupply - mainly as a result of new
capacity installations in China - have prompted us to downgrade our
forecast through 2006 by 2 percent. This assumes regulation of
output to a level near to real demand. Further downrating may be
necessary in future if this does not occur.
The November figure was below our expectations: due in the main
to a decrease in the long products segment from weaker demand and
lower scrap costs working through into prices. We do not anticipate
any major decreases into the second quarter of 2006 because flat
product values should hold up as a result of output curbs. Modest
rises are still anticipated as the year progresses. These quite
optimistic forecasts could, however, be undermined by higher import
volumes from Asia. Weakness of the Euro against the US dollar should
keep imports to manageable levels.
The average all products figure fell by 3.5 percent in November.
This was more than we anticipated but was the result of substantial
oversupply in the region for most product classifications. Our
forecasts for the next twelve months have been downrated by
approximately 4 percent because we can see little chance of the
situation improving unless significant controls on output are put in
place beyond those already undertaken. The build up of capacity
installations in China will make this task extremely difficult.
In the short term our previous price forecast is likely to be
exceeded. This is due to higher scrap costs working through into
steel mill selling prices and the completion of the inventory
drawdown for many product categories. However, we believe that in
the next few months all product prices will come under negative
pressure from Asian imports as the mills take advantage of the high
North American prices. This export surge could push the all product
price in the second half of next year to a level below our earlier
predictions.
