Meps Sees Further Declines in Global Steel Demand

Both industrialized and developing countries are seeing sluggish steel markets.

November 28, 2009

Raw steel output continues to climb steadily in the United States. Mill utilization rates were up to almost 65 percent in the first week of November. However, the recent relighting of blast furnaces has not coincided with a similar upturn in consumption. Oversupply could become a problem in the first quarter next year.

Service centers report that their sales have slowed markedly due to a lack of end-user demand, a situation service centers expect to continue for the remainder of this year. Consequently, the restocking phase has come to an abrupt end. As Meps has anticipated last month, steelmakers have started to offer discounts in order to solicit business, despite a lack of any real import competition.

Mill order intake is also softening in Canada, in line with the usual seasonal slowdown. Customers' activity levels are still low and many expect to see relatively weak business conditions ahead. Buyers are cautious regarding their expectations for the start of next year.

Our transaction numbers are below those of October. Producers report that pricing is very competitive and they are anticipating the need to offer further concessions in order to fill their December rolling schedules. There have been some increases in import permit applications believed to be due to earlier domestic supply disruptions.

Chinese market sentiment is healthy. Local values have rallied over the last four weeks, driven by speculators, rising input costs and government promises to continue to support economic expansion. Several mills have recently lifted their official ex-works prices as a sign of confidence in the changed market conditions. Nevertheless, the specter of oversupply still dominates the steel sector because the producers have failed to curb production.

The Japanese economy remains relatively weak, with few signs of any significant recovery in flat product demand, other than from auto and overseas steel sales. The mills are cautious regarding 2010. They believe that the current revival in their own country and elsewhere in Asia is largely due to governments' stimulus measures. The question is, "Will the trend continue when these initiatives are no longer in force?"

Inventories held by local mills and distributors, as the end September, decreased by 1.5 percent compared to August. Quayside stocks of imported flat products dropped by a similar amount in the same time frame, to reach the lowest volume ever recorded, as buyers spurned foreign material.

Better demand from the vehicle and home appliance manufacturers continues to propel a small improvement in the South Korean flat products sector. Stocks, at the end of September, had reached a record low for the year. Cheap imports, particularly from China, are damaging market values in Taiwan as domestic suppliers strive to maintain market share.

There are few positive signals in Poland. The supply constraints reported in October have eased. Although prices are unchanged at present, Meps reports downward pressure due to a deficit of any significant activity. As expected, the enhanced figures realized in the Czech/Slovak market last month were not sustainable. Final consumption remains low. Service centers are selling off stock very cheaply, thus incurring poor profit margins. Buyers report competitive offers from Russian mills.

West European producers are currently facing low order intake as the flurry of activity in early September has tailed off now that distributors have restocked to appropriate levels. In many countries, prices have been lowered a little to encourage purchasing. Negotiations will start soon for first quarter 2010 business but no official announcements have been made yet, regarding the mills' proposals. The threat of excess supply is still causing unease as the steelmakers expand production while demand from the key consuming sectors stays weak. As far as imports are concerned, more expensive Chinese offers are dampening interest from potential customers.

Downward Pressure Continues On Steel Prices In The Developing Nations

Challenges also remain for developing countries. Purchasing activity remains subdued in the Turkish market. Downward pressure has continued to be exerted on negotiated finished steel prices. Market participants are presently trying to maintain manageable inventory levels. In the flat product segment, the preference for short-term agreements between buyers and sellers persists. This situation is predicted to continue until the business environment normalizes.

Trading conditions in the UAE remain difficult. Sentiment amongst distributors is low. Nothing has transpired that suggests purchasing activity will turn the corner in either December or January. Foreign suppliers have modified their flat product and construction steel offers several times. Only small quantities of material have been ordered. CIS suppliers have struggled to sell material despite their lower quotations. At present, no one is prepared to carry unnecessary high stocks into the New Year.

Indian flat product steelmakers have downgraded their flat rolled material prices. Producers have linked these revisions to the downturn in global prices and an appreciation in the rupee. The actual reduction is not that significant because less generous discounts are being offered. Construction steel prices have been under pressure since July/August. The majority of the majors have rolled forward their October values. Producers have been hesitant to lower their quotations owing to the cost of scrap and semi-finished products.

The business environment in South Africa remains arduous. ArcelorMittal South Africa has lowered some of its domestic offers for November. The mill has stated it reduced the figures in its local quotations according to international price trends and the Rand/Dollar exchange rate. Local buyers are not convinced. The benchmarking favored by the steelmaker does not echo market conditions. These are the first downward revisions since the producer started to raise its prices in July. Highveld has continued to follow AMSA’s pricing direction, albeit at a final price which is around 1 to 2 percent lower than its competitor.

Sentiment in the Brazilian market remains mixed. The spotlight has once again fallen on the pricing policies of internal steelmakers. Distributors have raised their domestic offers after their purchasing discounts were moderated. The price rise has drawn criticism from users. Producers have also started to contact their flat product customers over a possible December price rise.

Higher raw material costs and a stronger Real are being held responsible. Rising scrap and billet values have raised concerns that long product quotations may edge higher.

A few segments of the Mexican steel market are starting to show positive signs. Negotiated prices have been under less pressure in November. In general, end-users remain content with purchasing small lots of material. This trend will more than likely continue in December and January.

Russian steelmakers surprised the market with their conservative November offers. Observers had predicted more substantial cuts. Export quotations have been adjusted to reflect the general health of global markets. Last month’s coking coal shortage has been blamed on the Sayano-Shushenskaya hydro-electric power station accident. Russian coal companies raised their deliveries to local power plants to prevent power shortages.

In the Ukraine, effective construction steel values have started to exhibit signs of weakness. Pressure is being exerted by price competition amongst distributors and producers, as well as the onset of weaker seasonal demand. Domestic flat product offers are more or less untouched. The Ministry of Economy has started to examine the pricing strategies of the local steelmakers. Attention is being paid to the disparity between domestic and export prices. In recent months, local quotations have started to edge higher while global prices have fallen.