THE MEPS NOVEMBER GLOBAL STEEL PRICE FALLS 15 PERCENT

Demand in the US has fallen to such an extent that the mills are currently only producing at 65 percent capacity, compared to 91 percent in August this year. Service centres report that business has come to a virtual halt, leaving them with substantial volumes of high cost stock, that they are selling off as quickly as possible at very low prices. The steelmakers have reacted by taking out blast furnaces and curbing production. Transaction values have been cut accordingly. Foreign suppliers also need orders and it is expected that import tonnages will rise in early 2009, particularly as the strengthening US dollar makes the market more attractive to overseas players.

Production levels have also been significantly curtailed at several facilities in Canada and mills will extend the traditional December/January shutdowns. Order intake is well down as customers hold off buying unless absolutely necessary. Scrap prices continue to retreat, putting additional pressure on transaction values, which are moving rapidly in a negative direction. Business levels are expected to worsen over the next two months. Distributors and end-users are keeping inventories extremely low in the current environment. Imports are not a factor in the market as offer prices are uncompetitive. Moreover, buyers will not risk taking any longer term positions.

The downward price correction in the Chinese flat products sector continues, propelled by the financial turmoil on world markets and falling raw material costs. Although the losses are not as huge as those reported last month, they are nevertheless quite substantial, prompting the domestic mills to scale back production. Downstream industries, such as auto and home appliances, are contracting as exports of finished goods are hit by the monetary crisis, depressing steel demand even further. In addition, the local mills are selling less material to overseas clients. The Chinese government has recently announced a new investment package, designed to boost domestic demand and economic growth.

Japanese steel makers are trimming output in the light of the deteriorating situation at home and abroad. Inventories of stripmill products held by local mills and distributors, at end September, moved up by 2 percent compared to August - climbing to the third highest level on record. Meanwhile, quayside stocks of imported flat products increased by 4.3 percent in the same time frame. The stronger yen is making dollar denominated imports cheaper to purchase. Tokyo Steel has recently announced another round of major price cuts for November contracts. There is now a large disparity between prices charged by the company and those of the blast furnace steelmakers.

In South Korea, demand from the auto and construction industries has weakened sharply. The slump in the value of the won is damaging the steel sector in particular as the mills depend on imported raw materials and feedstock. The market situation in Taiwan is bleak, with downstream customers unwilling to purchase in volatile market conditions. Distributors have run down their stock to such an extent that shortages are developing for certain grades/sizes.

Sales are weakening in Eastern Europe, triggering output cuts at a number of regional mills. Polish demand for stripmill products is still low amidst overfull inventories. No let up in downward price pressure is anticipated in the near-term. Buyers in Slovakia and the Czech Republic are hesitating to purchase at present because the actual level of pricing is hard to establish, with suppliers quoting in a variety of currencies as exchange rates fluctuate. However, it is clear that the tendency is negative. Stocks are growing. Market players suggest that it will be the end of the second quarter 2009 before any recovery takes place.

Demand for steel in Western Europe has collapsed. Current price levels are hard to verify because so few forward orders are being placed. Buyers are afraid to purchase because selling values are dropping on a daily basis. Such is the decline in real consumption that existing stocks through the supply chain will be sufficient to meet market requirements for several weeks and even months ahead. Recently announced savage cuts in steel production are not just required to rebalance the market in the short term. They are necessary to cut costs as the mills and service centres are facing unprecedented negative price pressure.

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

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