Tuesday, February 24, 2009

Steel output increased in China. Where now on steel prices?

I was amazed to see a report that Steel production in China was up month on month in January by 10 % to 41.5 million tonnes (source forbes.com)

When worldwide demand is so weak and US and European output has been slashed this comes as quite a surprise, and has resulted in the fall in share value of ArcelorMittal and other world steelmakers.

I have become used to the European steelmakers, restricting output in the past to protect prices. This could be considered good business practice or protectionist, depending on your point of view, but in the current market it's unlikely to be effective. For now survival is a higher priority than protecting margins.

We see no sign yet of any recovery in manufacturing and no prospect of demand for steel increasing any time soon. No one that I have spoken too within the industry sees any prospect of an improvement in the first half of 2009, and in fact there are signs that things are getting worse. To quote one of my contacts "Yes we do see light at the end of the tunnel, but our fear is that it's an oncoming train"

Here however comes the irony! Whilst the fall in steel share prices is due to analysts forecasting sharp falls in steel prices, in some sectors we can see price increases on certain sizes and grades. As stocks at the service centres reduce then inevitable gaps are going to appear in the inventory range, and with little forward ordering that will leave gaps and lead to premium prices being asked for for certain products. Only a brave or foolhardy buyer is going to speculate and order stock which they cannot be certain to sell and that will inevitably lead to gaps appearing in the available inventory of certain size / grade combinations.

Things are not getting any easier!

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