CONSOLIDATION
SHOULD LEAD TO MORE STABLE STEEL PRICES
There has been much talk about
how consolidation may affect steel pricing, and whether
concentration of ownership will result in greater price stability.
It is important to put such talk in context. Unlike iron ore –
where the top three producers supply 75 percent of the market –
steel is much less concentrated even after the Mittal-ISG merger.
The top five steel companies still account for less than 20 percent
of global output. In some regional markets, the shares held by the
new giants of the industry are much larger. Mittal Steel has around
44 percent of the US market for flat rolled steel. Arcelor has a
large slice of the European market for these products, as does
ThyssenKrupp.
A smaller number of suppliers ought to mean
an increase in the mills’ pricing power. Several of them have
stated that they will align supply to match demand, “to support
price over volume”. At a juncture in the steel cycle where prices
are threatened by over-supply, this resolve is now being tested.
The price falls in both North America and
Western Europe over recent months are largely the result of a
build-up of inventories, after consumers and distributors
over-bought in 2004. Five years ago, it might have taken well over
six months to work off this stock overhang and prices would have
gone through the floor. They still may do – but so far they have
not.
Producers on both sides of the Atlantic cut
their output – by bringing forward maintenance stoppages, reducing
operating rates, and suspending some production lines entirely.
Mittal’s US plants have led the way. The former Ispat Inland cut
its output in the fourth quarter of last year by about 12 percent
from period three. More recently, ISG has shut a BOF at its
Cleveland West plant. The retrenchment in supply has been aided by a
technical problem at US Steel’s Mon Valley works.
In Europe, the leading producers have been
queuing up to release details of production cuts, in the hope of
convincing the market that supply is being restrained. Arcelor says
it is reducing output of flat products by 1 million tonnes over six
months. Corus, ThyssenKrupp, Riva, Salzgitter and Rautaruukki have
made similar announcements. US mills have also been keeping steel
off the domestic market by diverting more of it overseas. February’s
trade figures show US exports exceeded 800,000 short tons for the
second successive month, and only the fifth time in 15 years.
European suppliers have also stepped up foreign shipments.
It is too soon to confirm the theory that
"consolidation stabilises prices". However, the power that
the big mills now hold in many flat product categories indicates
that success may be just around the corner. This assumes that the
announced capacity cuts are implemented and any improvement in
market conditions is not followed by price hikes which attract
excessive import volumes.
