On Monday, IMT addressed how many companies that buy steel have started to reduce purchases on the back of weaker demand in their sectors. "Much of this is linked to credit restrictions spreading into the economy," as reported last week by the Financial Times (subscription required).

Now many steel buyers "aren't getting short-term lines of credit from lenders to purchase raw steel and process it," the Financial Times (sub. req'd) yesterday reported in continuing coverage. "Others are delaying purchases because they don't want to be stuck with excess steel.

As a result, prices for many grades of steel have fallen substantially.

Steel prices this summer were at record highs and mills were running at full capacity. Demand was expected to rise 8 percent, outpacing the 5 percent capacity growth.

Now the price of hot-rolled steel, the benchmark steel product, is $780 a metric ton on global markets, Peter Marcus, steel analyst for World Steel Dynamics, said in a Wall Street Journal report yesterday (sub. req'd). "That is down from $1,000 a metric ton earlier this year but still more than the $650 it costs for most steelmakers to make a metric ton of steel."

In continuing coverage, the Financial Times (sub. req'd) yesterday reported, "Top executives of big steel companies — in Washington for the annual meeting of the World Steel Association, which ended on Tuesday — have been reacting in a somber manner to indications that the global economy has been deteriorating at a rate faster than previously thought."

"We are in a period of high economic uncertainty," Ku-Taek Lee, chairman of the World Steel Association (formerly the International Iron and Steel Institute), said in a statement over the weekend. "The impact on steel markets is becoming more apparent as we move into the later part of this year."

"The big question that everyone is asking is to what degree the economic problems of the U.S. and Europe will spread to other countries," according to André Gerdau Johannpeter, chief executive of Gerdau, a Brazil-based steelmaker that produces 40 percent of its steel in the United States.

Sakari Tamminen, chief executive of Rautaruukki, Finland's biggest steel producer, noted, "Up to now, most of my company's business has been relatively unaffected by the crisis. But we all [in the steel industry] need to be assured that actions by governments in tackling the financial turbulence are having an impact."

According to the latest data, steel shipments by metals service centers in the U.S. and Canada declined at double-digit rates in August: U.S. centers' shipments of steel products declined to 3.87 million tons, 16.8 percent below the August 2007 shipment total; Canadian steel service centers' shipments dropped 18.2 percent from August 2007 totals, to 258,200 tons. (Source: The Metals Service Center Institute)

To counter the weaker trends, the Financial Times last week said, "many steel companies are preparing to cut production, at least for a few months, in the hope this will match falls in demand, and maintain prices and profitability."

ArcelorMittal, the world's largest steelmaker, has already announced it will reduce production by 15 percent in some markets. And China's steel association has said some of its steelmakers were planning to cut production by about 20 percent to mitigate falling prices.

In fact, five of China's largest steel producers — Shougang Group, Hebei Iron & Steel Group, Anyang Iron & Steel, Shandong Iron & Steel and Baoshan Iron and Steel Co Ltd. — are cutting raw steel output by 10 percent to 20 percent through the end of 2008, according to reports (via Metal Producing & Processing and China Knowledge). These four companies alone have a combined capability of 100 million metric tons/year.

ArcelorMittal CEO Lakshmi Mittal told the Journal that "tightening in the credit markets could keep supply in line with demand, as proposed new mills or expansions fail to get necessary financing."

Although steelmakers are cutting growth projections for 2009 and 2010, many are still looking forward to at least some expansion in demand.

"We are seeing a slackening in demand. But there's no reason to think it will be a catastrophe," the Financial Times quoted Wolfgang Eder, chief executive of Austria's biggest steelmaker, Voestalpine, as having said.

Eder projects world demand for steel will grow 4 percent to 4.5 percent next, echoing Mittal's forecast. Growth last year was 6.6 percent; in 2006, it was 8.8 percent.

Many steel producers are pinning expectations on hopes that demand in India, China and South America and developing regions will move ahead at a quick clip, driven by the need for new infrastructure. Companies with much of their operations in such emerging regions are more positive about the outlook on demand compared to those based mainly in developed countries.

"We are currently reviewing our forecasts for 2009, which had been prepared this summer before current events," the World Steel Association's chairman said in the weekend's statement on the organization's short-range forecast. "However, we continue to expect growth in steel demand in 2009 and for the medium term, above the world GDP growth rate."

Resources

Steel, Aluminum Shipments Decline Sharply in U.S., Canada
The Metals Service Center Institute, Sept. 17, 2008

Steel Outlook Falters as Demand Falls (sub. req'd)
by Peter Marsh
Financial Times, Oct. 2, 2008

Statement on Short Range Outlook (SRO)
The World Steel Association, Oct. 6, 2008

Big Steel Groups Cast Out of 'Paradise' (sub. req'd)
by Peter Marsh
Financial Times, Oct. 8, 2008

Steelmakers Face Softer Demand (sub. req'd)
by Robert Guy Matthews
The Wall Street Journal, Oct. 8, 2008

Chinese Steelmakers Eye Output Cuts
Metal Producing & Processing, Oct. 9, 2008

Hebei Iron and Steel Group to Further Cut Output by 10%-20%
China Knowledge, Oct. 13, 2008