Commodities | Dec 19 2008
By Rudi Filapek-Vandyck
The news from global steel markets simply continues to worsen if the latest market observations by industry researcher MEPS are anything to go by.
MEPS reports this morning US transaction values continue to drop as participants in the steel market simply do not feel the bottom has yet been reached. This, notes the consultant, is despite substantial mill output cuts, with capacity utilisation down below 50% in early December. MEPS also reports that purchasing in the US steel market came to “a virtual standstill” in late November and no pick up is anticipated for the remainder of this calendar year.
In addition, reports the researcher, production levels have also been significantly curtailed at facilities in Canada. Order intake is extremely sluggish, with buyers continuously pushing for lower prices and demanding very short delivery lead times. There is some positive news in the offing though, with MEPS adding: “We understand that the current inventory run-down will be completed early in 2009, so this should support a pick up in purchasing. Recently, offshore material has become available at well below domestic prices. However, customers will not risk taking any long term positions.”
However, Chinese flat product values have rebounded as the government’s new investment package and fiscal stimulus plan lift overall business sentiment in the country. Unfortunately, says MEPS, this recovery could be short-lived if excess supply continues to plague the market. Some Chinese mills that were idling production have already resumed output. Weakening Chinese exports of home appliances and machinery have cut domestic steel demand, whilst overseas sales of steel, which were expanding at an extraordinary pace, continue to fall away.
In Japan, steel mills have deepened their output curbs in the light of bleaker sales predictions by major end-users such as domestic appliance and auto manufacturers. Inventories of strip mill products held by local steel makers and distributors, at end October, moved up by 1.5% compared to September, according to MEPS. Inventories now stand 12% above the 4 million tonnes level considered to be appropriate in a normal business climate. Also, quayside stocks of imported flat products increased by 11.5% in the same time frame, as overseas mills took advantage of the appreciating Yen to push steel into the Japanese market.
For South Korea the situation is likely to be even worse, with MEPS using the term “dismal” to describe the outlook for steel demand in 2009. Both construction and manufacturing industries in the country are suffering badly as a result of the global downturn, reports MEPS. As a result, a growing number of steel producers in South Korea are reducing capacity in order to cope with tumbling sales. In response to a gloomy market outlook, Taiwan’s leading steel maker, CSC, has promised to slash prices by an average of over 20% in the first quarter of next year. The company will also limit output by approximately 10% because of maintenance shut-downs at its plant in Kaohsiung.
The situation is hardly more promising for steel mills in Poland, the Czech Republic and Slovakia. MEPS reports overall consumers are only buying the steel they need immediately. Stocks were low before the crisis struck and companies have no plans to rebuild them at present.
West European producers continue to impose huge output cuts in the face of what MEPS describes as “an unprecedented downturn in real consumption and a massive de-stocking programme by customers”. MEPS concludes it is likely to be some time in the first half of 2009 before steel markets will be back into balance and a floor under ever-decreasing prices will be in place.