Steel prices in 2009 have mirrored the global economic performance, with prices hitting lows in early Q2, before recovering through Q3. Asian prices were the first to move upwards, driven by the early adoption of the Chinese stimulus and credit expansion.

The increase in credit availability drove demand for steel-intensive
consumer goods such as cars and white goods, while also being invested
into private sector construction. The stimulus funds also went into
construction, and around 65% of steel consumption within China is
utilised in construction applications. Steel output in China in Q3 was
running at an annualised output rate of close to 600m tonnes, and China
is likely to produce almost 50% of global steel this year, compared to
less than 10% of global GDP – a clear mismatch that cannot be sustained
indefinitely.

A stimulus by its definition is a one off event and our concern is that
when this is withdrawn, the excess steel capacity will initially flood
other markets, but may also set the scene for an extended period of low
margins and poor profitability for steel mills as the Chinese
fifteen-year boom in capital investment ends. The end of the post-war
North American and European investment cycle in the mid 1970s resulted
in 30 years of restructuring, capital destruction and huge losses in
their respective steel industries.

The impact of low capacity utilisation on steel industry margins has
already been seen in 2009. As a result of inventory accumulation at the
end of 2008, when the steel industry was slow to recognise the economic
slowdown, output was cut dramatically in the first half of 2009, and
GFMS estimates that global crude steel utilisation rates dropped to
60%, and this was even lower in mature economies. Even as output has
bounced back to 75-80% levels, producers lack pricing power as any
improvement in demand is met by producers eager to gain market share
and willing to price at marginal cost if necessary. Nowhere is this
clearer than in long products, where Turkish rebar producers have been
unable to claw back margins to previous levels as they struggle to sell
into Middle East and North African markets, where demand is running
significantly below last year levels.

With global demand set to remain below peak levels through 2010,
pricing and margins are unlikely to return to peak levels. However, as
the global economic performance improves through the first half of
2010, steel demand is expected to grow. As mills secure additional
ferrous scrap and other raw materials, we expect steel prices to go up
in line as conversion costs are already at marginal levels. In
addition, inventory cuts through 2009 have left steel stocks in mature
economies at low levels and this will require additional purchasing by
distributors that will boost apparent consumption and help to push
prices up further through the first half of 2010.

However, we are forecasting that the global economy will only exit the
recession slowly, while capital intensive (and steel-intensive)
construction demand will lag. The industry therefore runs the serious
risk of excess supply and price weakness by the second half of the year
– a trend that may be compounded by the beginnings of the withdrawal of
Chinese stimulus.

In 2008, more than 1.3bn tonnes of steel were manufactured with an
economic value of well over $1 trillion. Steel is a basic material
present in virtually all industrial processes and construction
applications and is the most ubiquitous commodity market of all. Yet it
remains relatively opaque.

Source: GFMS Consulting

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• India sees pick-up demand for steel products next year

    NDIA’S steel demand is expected to grow 9-10 per cent in the next fiscal year that starts April 1, helped by economic recovery and higher government spending on building roads and ports, the chairman of the country’s biggest steel producer by capacity says. Steel Authority of India chairman S. K

• Indian steel firms to hike prices in New Year

    India’s SAIL, Essar and Ispat, all steel majors, are all set to hike prices by 3-4% or Rs 1,000-1,500 per tonne in January in line with rising global prices. In November, international steel prices had gone up over 5% following a rise in demand. The price hike, which will be

• Chinese coking coal Be in 2010, says KGI

    Stephen Wang, an analyst with KGI Securities in Taipei, comments on the outlook for Chinese steel production and demand for coking coal to make the metal. “China’s crude steel output will grow by around 8 percent in 2010 to above 600 million metric tons. Strong steel output growth will sustain

• China: Increasing production, inventory and prices to build risk in iron and steel industry

     China’s domestic steel prices have kept rising for 15 weeks despite overcapacity and significantly increasing stock levels. The price of various types of construction steel has exceeded 4,000 yuan per ton, creating a price surge risk. Overcapacity is still the key issue faced by the iron and steel industry. Supply and

• India SAIL chairman said steel prices may rise in January

    State-run Steel Authority of India Ltd expects steel prices to go up next month following a rise in global prices, its chairman said on Thursday.

• China domestic steel prices kept rising despite overcapacity

    China’s domestic steel prices have kept rising for 15 weeks despite overcapacity and significantly increasing stock levels. The price of various types of construction steel has exceeded CNY 4,000 per tonne creating a price surge risk. Mr Wu Xichun honorary president of the China Iron and Steel Association said overcapacity is

• Steel Authority of India cuts prices by up to 10 U.S. $ per ton

    India’s state-run steel maker SAIL cut the prices of its flat steel products, used mainly by automobile and white goods industry, by up to Rs 500 (US$10.81) a tonne on account of weakening global demand.

• SAIL further reduced steel prices by Rs 500 per tonne

    State-run steel maker SAIL on Monday cut prices of some of its products, used primarily by the automobile and the white goods industry, by a further Rs 500 a tonne mainly on weak global demand.

• Greater than expected increase in steel prices likely

    Flat steel prices are on the rise worldwide. There is strong demand for them and today buyers are chasing suppliers in Asia

• JFE Steel to hike Q1 export price 30pct

    Dow Jones reported that JFE Steel Corporation will seek a price increase of around 30% for its key steel products for export in the April to June 2010 quarter, a move that is likely to weigh on production costs for manufacturers in Asia. Mr Tsutomu Yajima SVP of JFE said

• Will demand for steel, Come Back?

    World steel prices have recovered some ground since their nadir last spring, but they’re still a far cry from the levels that prevailed during the heady days of summer 2008.

• Iron ore output jumps when calls can be affected in China

    Steel production in China has gone up in 2009 and this has complicated the country’s iron ore price talks with international companies. A report said the country’s steel production has climbed up by 14 per cent to a record last year. Steel output rose to 568 million tonnes in 2009

• Maanshan Steel Says Chinese prices are at breakeven levels

    Maanshan Iron & Steel Co., the second-biggest Hong Kong listed Chinese steelmaker, said prices in China are trading around breakeven levels. “At present, the steel prices are around the breakeven levels,” Chairman Gu Jian Guo said today in an interview in Beijing. “We’re having a small profit margin.

• Emerging markets to drive global steel production recovery in 2010 – Mr Alexander

    Mr Alexander Abramov chairman of Russia Evraz Group said at the Russia 2010 forum in Moscow that demand from emerging markets, not Europe or the United States will enable global steel production to recover to pre-crisis levels in 2010.

• JSW Steel hikes prices by 3-5% in all categories

    JSW Steel Ltd, the country’s third-largest steel-maker on Monday said that it has raised product prices by 3-5% across all categories led by an increase in raw material prices and pick-up in demand. “We have raised product prices across all categories by 3-5% starting this month,” JSW Steel, director sales