THE MEPS GLOBAL COMPOSITE STEEL PRICE BOTTOMS OUT IN JANUARY

US transaction values continue to fall, although the descent is less startling than of late. Some market players feel that even though demand is still far from robust, the bottom may have been reached and prices will settle at this lower level. Mill outages should start to create tighter supply. Moreover, service centre inventories are very low because distributors sold off surplus material cheaply in December and now have gaps in their stocks. Nevertheless, delivery lead times have been cut dramatically, with activity in the main steel consuming sectors showing no real signs of revival. There are very few foreign offers because of low demand and weak prices.

Market conditions are not favourable for the Canadian mills who are laying off workers. Production utilisation rates have fallen to around 45 percent with domestic order books in poor shape. Although customers' inventories are dwindling, buyers are still limiting their purchases. Nevertheless, strip mill transaction prices are starting to hold, albeit at very low levels. However, a major cause of concern is the credit worthiness of customers.

Chinese flat product values have started 2009 on a positive note. Several mills that had cut output are now restarting their production, encouraged by the demand boost caused by the government's fiscal stimulus package. In contrast, steel exports continue to contract and overseas sales of manufactured goods are also declining due to the global economic crisis. The market will officially close between January 25 and 31 for the Chinese New Year celebrations but many companies are winding down earlier than this.

Japanese steel demand is falling rapidly, due to the slump in all the major consuming sectors. The mills have deepened their output curbs to match declining sales and to try to improve the massive stock overhang. Inventories of strip mill products held by local steelmakers and distributors, as end November, moved up by 2.1 percent compared to October. Quayside stocks of imported flat products decreased marginally in the same time frame, despite fears that the strong yen would encourage overseas mills to push more steel into the Japanese market.

As demand from South Korean steel consumers looks as if it will weaken further, Posco is considering stepping up its production cuts for the first half of 2009. The company has said it plans to keep domestic prices unchanged for the foreseeable future. A small revival is expected in the Taiwanese market, where recent limitations on output have tightened supply. In addition, more export opportunities are anticipated after the Lunar festivities because Chinese mills are putting up their prices to Asian customers, making Taiwanese material more attractive. CSC has delayed negotiations with overseas customers for February/April deliveries until after the holidays.

Polish steel demand is described as "not very high". Exports of steel intensive manufactured goods fell rapidly throughout the final quarter of 2008 and further deterioration is predicted for this year. ArcelorMittal has applied lower basis prices this month for hot and cold rolled coil. In the Czech/Slovak markets, domestic values have followed developments in adjoining countries as local mills lost the struggle to stop the slide. Producers are now carrying some excess material. Resale profits are dropping as service centres try to off-load stock in order to generate cash.

In Western Europe, many steelmakers and manufacturers took much longer breaks than usual over the Christmas/New Year holiday period because of the current economic downturn. Consequently, business was slow in the steel market at the start of 2009 with few transactions concluded.

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

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