Wednesday, March 30, 2005

More Steel Pricing thoughts

Well after a short Easter break in Turkey
I find myself back and wondering about the strange situation with steel pricing.

Steel prices in Europe are showing declines in March, across the board – a development that could surprise many. Price declines are being seen on all product categories, including plates, which is a strong market. The EU average flat products price at €591 per tonne, down from €602 last month. Consumers who have had to take the burden of higher input cost were holding off from placing fresh orders which has resulted in volumes dropping below that of last month. They are also making use of inventories which have been building up since the later part of 2004. Less than the normal volumes of agreements for new business have been reported this month. They are living off stocks that have been mounting since the latter part of 2004. Buyers had increasingly resorted to imports in the last few months of 2004. The tonnages thus ordered have arrived now leading to high stock levels. Analysts say that real consumption in the EU -15 appears to have gone up by less than 3 per cent last year. On the other hand figures from the producers` organisation, Eurofer, show that EU mills increased deliveries into their domestic market by no less than 5.7 per cent in the same period – almost double the rate of growth in actual consumption
While it will take a while for the inventory build up, with increase in stock in excess of 4 million tones. Given the state of GDP growth in Europe, the prospects for EU -15 steel demands this year are likely to be modest. GDP in Euro area may rise by less than 2 per cent in 2005. But clearly the development is a change from a stronger European scenario for steel prices in the last one year. Local mills are already dropping prices to avoid a cut in off take. What the industry could do is to pass on the hike in raw material prices to the consumer, but that would perhaps have to wait for the second half of the year.
Text book economics would tell you about price/demand relationship, but those who have followed the steel industry have been left wondering at the new emerging model, where demand continues to be strong irrespective of prices. But as and when margins for industries that use steel get squeezed due to rise in input costs and final consumers resist price hike, nervousness in steel markets would start surfacing. Steel could face a double hammer, one from the consumer and the other from ore suppliers, who are in no mood to come down on prices.

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