Thursday, February 26, 2009

More steel price weakness in Industrialised Countries- MEPS Report

There is still downward pressure on US transaction prices, although the rate of decrease has decelerated. Mill outages continue, with operating levels quoted at between 40 and 50 percent, depending on the facility. Deliveries are running late because of the production constraints. Nevertheless, distributors are keeping inventories at the lowest levels in many years as they react to the sharp decline in end-user steel demand caused by the economic recession.
The Canadian market remains depressed due to auto production cuts and weak construction activity. New order intake at the steelmakers continues to be slow, with no improvement from the poor levels of late 2008. Both service centres and consumers are working with such reduced inventories that they have to request rapid deliveries when they do purchase from the mills. Distributors’ volumes are low and profitability is declining. Although some imports are available at figures below domestic ones, customers are loathe to commit to offshore business.
The Chinese steel market responded quite positively to the government’s economic stimulus package and to the plans to revive auto, shipbuilding and machinery manufacture. These are expected to grow demand during the first half of 2009. However, the upward price tendency experienced over the last two to three months appears unsustainable for now. Domestic values rose in the first few trading days following the Chinese New Year holidays but have turned down since then. Steel exports continue to contract and overseas sales of manufactured goods are also declining due to the global economic crisis.
The Japanese mills are deepening their output curbs in the face of rapidly shrinking sales. They state that their prime task now is to reduce stock levels. Inventories of strip mill products held by local steelmakers and distributors, as end December, moved up by 3.1 percent, compared to November - to the highest level ever recorded. Meanwhile, quayside stocks of imported flat products rose by 2 percent in the same time frame - the first increase since October 2008. Tokyo Steel decided to cut domestic list prices for all its products by between ¥3000 and ¥10,000 per tonne for March contracts.
South Korea's Posco has extended its steel production cutbacks into this month due to weakening market conditions and the need to adjust stock levels. Flat product inventories at distributors climbed by 4 percent between November 2008 and the end of the year, reflecting dismal demand in the auto and appliance sectors. They stabilised during January.
Recent limitations on output have tightened supply in Taiwan, enabling producers to hold on to prices. In mid February, CSC announced its price intentions for April/May, which involve an average discount of around 14 percent across all products, in anticipation of lower raw material costs. The company usually issues quarterly figures but, this year, June values will be advised separately. It may be that CSC expects an upturn in the market around that time.
The global crisis is impacting Poland. Strip mill demand is very limited at present with no significant mill bookings to speak of, thus causing suppliers to offer further price reductions. In the Czech and Slovak markets, the steel sector is expected to perform badly as long as the current economic squeeze persists. Those producers linked to the auto industry are likely to suffer the most. Mill prices may be at the bottom now and are expected to stay at this low level until mid year. Any recovery in the second half is expected to be small. Resale values are under considerable pressure as distributors fight for the few deals available - desperate to sell their high priced stock.
In Western Europe, market sentiment is depressed. The slightly more positive attitude witnessed at the start of 2009 evaporated a month later. Producers failed to achieve the first quarter price rises they were seeking, due to continuing weak demand and a lack of any desire on the part of customers to order ahead.

It is very hard at the moment to predict with any level of certainty what we can really anticipate going forward on prices as there is so little activity to base predictions on. Prices have been falling as mills and service centres de-stock. Until such time as manufacturers look to rebuild stocks the uncertainty will remain, and there seems little willingness to do this at the moment in view of very uncertain order books.

Report by MEPS

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