Wednesday, October 08, 2008

Steel demand, fuzzy thinking and prices

Paul over at the Tinbasher in his own eloquent way has raised an issue, that is something of an enigma that has been puzzling me for some weeks. Despite the global melt-down in financial markets and "dire" forecasts on manufacturing, why are the Steel companies still forecasting growth next year?

Although Lackshmi Mittal tempered his more recent enthusiasm on steel demand at the latest International Iron and Steel Institute annual bash (see report) at cnnmoney, the steel producers still appear at least outwardly optimistic about 2009.

Whilst steel companies are reducing capacity in the face of falling demand, they remain outwardly very "bullish" on price. Basic economics means lower demand leads to falling prices, just as increasing demand means rising prices, given a fixed supply. Reducing supply is therefore used as a tool to protect prices, and providing the balance is maintained, in theory it works.

I cannot help but think however that with orders falling away at current rates, holding prices is going to become something of a "trial", and despite the brinkmanship of the steelmakers, sooner or later someone is going to blink and prices will fall.

When I speak with the stockholders they all report that their suppliers are "holding the line" on prices,(at least in the UK)  but increasing evidence from around the world would suggest otherwise.

Things might get easier on the supply front for the "tinbashers", we just need to find the orders!

Oh and does anyone want to buy some steel , I have some :-)

The Tinbasher

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