Sunday, October 9, 2011

Steel industry braced for price cuts

Watch what this does to the strength of the Aussie and Candian dollars and economies. Aivars Lode

October 9, 2011 2:46 pm

The steel industry faces tough times with companies braced for falling prices as buyers delay orders due to extreme nervousness about global economic weakness.
The expected drop in prices threatens the outlook for profits at some of the biggest steelmakers just as their chief executives gather in Paris on Monday for the annual meetings of the World Steel Association, the industry’s main international body.

Behind the gloom are worries about the build-up of government debt in the US and Europe, coupled with the sense that the eurozone crisis could be about to worsen in the wake of a default by Greece.
There are concerns over Chinese demand too as inflationary pressures have forced Beijing into cutting back on the supply of credit, slowing down growth of steel consumption in China. The country has been chief locomotive in recent years driving up the expansion of the global industry.
Bruno Bolfo, chairman of Duferco, a Swiss company that is the world’s biggest steel trading business, said: “Prices for some grades of steel in Europe are at a disastrous level and are either at or only just above companies’ break-even position. Buyers are staying out of the market because they think prices may go down even more.”
Prices for some grades of steel in Europe are ... at or only just above companies’ break-even position - Bruno Bolfo, chairman of Duferco
Sajjan Jindal, chief executive of JSW, a big Indian steel producer, said he foresaw the turbulence spilling over to 2012 – a year he said was likely to be marked by “short-term economic and financial issues impacting long-term economic sustainability”.
Average world steel prices are forecast by Meps, a UK steel consultancy, to fall to $838 a tonne by December, which would amount to an 8 per cent decline since May this year.
Weakening demand for steel – by volume the world’s biggest selling industrial commodity, used in sectors from construction to automotive – is expected to feed through to only subdued production increases over the remainder of 2011.
Underlining the difficulties for the sector, the composite share price of all the world’s listed steel makers has underperformed global stock markets by 30 per cent since the beginning of the year.
Some steel companies in Europe – where weak consumption is creating especially severe trading difficulties – have cut back on production through temporary plant closures.
The strategy has been led by Lakshmi Mittal’s ArcelorMittal, the world’s biggest steelmaker. Due to temporary shutdowns and routine maintenance, only just over two-thirds of its European blast furnaces will be in action in the fourth quarter of 2012.
ArcelorMittal said this move was intended to protect its market share and remain competitive in the event that “the environment becomes recessionary”.
According to a survey for the FT by six industry experts, world steel shipments are set to slow next year to a rise of 4.9 per cent after a likely increase this year of 6.6 per cent.

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