WORLD STEEL PRICES CONTINUE TO SLIP BUT RATE OF DECLINE HAS SLOWED

There are no positive signals in the US flat products market. Demand remains in a trough with raw steel output now running at well under 50 percent of capacity - down at 42 percent in early April. Distributors are not buying. They are refusing to reorder until they can see some sign of a pick-up in consumption. Inventory holes are appearing but they are not being filled. Imports are clearly on the decline with licence applications well down.

Production outages continue at the Canadian mills, caused by a lack of forward orders. Depressed activity levels are forcing prices to spiral downwards and, even though the steelmakers are getting close to, or under, the cost of production, further falls are likely. Demand is very weak, exacerbated by declining output at the car makers. Customers' inventories are at an all time low and buyers are very pessimistic regarding the rest of this year. Import offerings are available from various sources but the volatility of the Canadian currency, together with the extreme price drops over the last few months, make the prospect of placing business overseas too risky.

The negative price trend persists in China as downstream consumption remains soft. However, the oversupply pressure has started to ease because the major mills have scaled back production in the last month. It is questionable whether the Chinese government's recent decision to reinstate an export tax rebate for a number of steel products, including cold rolled and hot dipped galvanised coil, will stimulate export business to any great extent, given the poor state of demand in most overseas markets. Conditions are described as "terrible" in Japan. However, mill sales are expected to edge up slightly during the second quarter. Consumers, such as auto and appliance manufacturers, should have adjusted their inventories and may need to re-order, albeit smaller quantities than usual. Dealer prices are constantly falling as stocks are liquidated. The bottom of the market remains uncertain. Shipments in the distribution sector remain low. Overseas suppliers have cut their exports to Japan.

In South Korea, Posco is expected to continue its large scale production curbs into period two, in line with sluggish steel demand worldwide and dismal domestic consumption. The company has said it hopes to ease its output restraints in the third trimester. Domestic mills are increasingly looking to lift their market share overseas, helped by the weak currency. Posco has promised to adjust prices after the conclusion of annual iron ore negotiations. The Taiwanese flat products sector is stagnant due to tepid demand from the main consuming companies. The market is quiet. Buyers anticipate that CSC will table lower prices in the future and, consequently, they are adopting a "wait and see" approach.

The Polish market situation is dismal with a lack of orders on both mills and distributors. Producers continue to reduce output. Demand in the Czech Republic and Slovakia has stabilised at a very low level. Consumption is extremely poor with all the main industrial sectors affected by the global crisis. Exports of both steel and finished goods have collapsed. Inventories are at an acceptable volume now, as most end-users and service centres destocked in late 2008/January 2009. No-one is willing to build inventories and customers are only buying small parcels to replenish certain sizes/grades. Prices continue to slide and further deterioration cannot be ruled out.

EU producers have failed to announce new prices for second quarter deliveries. It seems that the traditional mode of monthly or quarterly pricing no longer exists. Customers continue to purchase the absolute minimum and, wherever possible, from local or imported stocks. Therefore, selling values continue to head downwards with buyers becoming increasingly nervous about where they will bottom out. Meanwhile, finance problems are an additional worry for customers and suppliers, as insurers cut cover.

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

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