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January 27, 2009
Is the Worst Over for Steel?
Steel prices have potentially hit bottom after months of production cuts by steelmakers. Analysts are optimistic about recovery, hinging on government-invested infrastructure projects.
Steelmakers may have finally stopped steel prices from going through the floor and could be looking at some real demand increases in 2009, analysts say. "The worst could be over for depressed steel prices with slow improvement on the cards in Europe as evidence grows that destocking in the $800 billion industry is close to an end," Reuters reports analysts as having said.
However, the recovery is not expected to come rapidly and is not anticipated before late 2009 or early 2010.
Steelmakers removing millions of tons of capacity from the market in response to the tumbling demand and prices after the credit crisis was what limited further price declines, Steel Business Briefing says in its monthly SBB Global Market Outlook (registration required). Experts agree, saying that severe production cutbacks by major steel giants like ArcelorMittal, Russian Severstal and Korean POSCO last year have supported prices, Reuters notes.
Scrap steel, scrap metal, stainless steel and stainless steel product prices all dropped in December, according to the Institute for Supply Management's December 2008 Report on Business, while steel and aluminum prices continued to yo-yo. (For perspective, prices for manufacturing overall dropped 7.5 percent from November to December as production and new orders decreased by 6 percent and 5.2 percent, respectively.)
According to the World Steel Association, steel production in 2008 declined in nearly all steel-producing countries and regions, with the exception of Asia and the Middle East that posted positive growth. Though global raw steel production surpassed 1.3 billion metric tons for the third straight year, it was 1.2 percent less than the 2007 total due to steelmakers drawing down capacity in the second half of the year. The rate of decline of global output accelerated from September to December, with December setting a record 24.3 percent decline versus the previous year. North American raw steel production fell by 5.5 percent in 2008, with U.S. output totaling 91 metric tons — a 6.8 percent decrease from 2007 totals.
Production cuts in Europe and the U.S. are expected to continue for the first few months of 2009 as steelmakers wait for the world to emerge from recession, Steel Business Briefing says, adding that the U.S. is anticipated to start the turnaround one or two quarters ahead of Europe.
Still, prospects remain bleak for quick demand increases as major steel-consuming industries like automotive and consumer durables continue to struggle. About 15 percent of the end-market steel in North America went towards vehicle production in 2008, along with 30 percent of the aluminum demand, Canadian Business magazine notes.
"The market is not OK," Rod Beddows, chief executive of consultancy Hatch Corporate Finance, tells Reuters. "There is a restocking of inventories to a certain extent, but fundamentally to get back to the levels of 2007 is going to depend on economic factors. And we don't see those macroeconomic factors yet delivering on that. The credit crunch is not over."
Instead, Beddows and several other analysts are betting that government-led stimulus packages focused on infrastructure spending could help boost steel demand — "75 percent of steel consumption is driven by fixed capital formation, infrastructure building," Beddows explains.
Indeed, infrastructure projects to "modernize roads, bridges, transit and waterways" are slated to receive $90 billion of the $825 billion American Recovery and Reinvestment Act of 2009 stimulus package to be voted on for passage by the House of Representatives this week, Steel Business Briefing (registration required) reports. Material costs account for about 30 percent of infrastructure projects, and steel makes up approximately 8 percent of materials used, says Stan Hasselbuch, CEO of manufacturer LB Foster. Based on these numbers, about $2.16 billion of the $90 billion for infrastructure could be spent on the purchase of steel.
Steel Business Briefing adds that steel could also benefit from other construction projects like repairs and new construction of schools, research facilities, public housing, federal buildings and power generation plants.
Recent
Steel Industry Looks for a Piece of the Stimulus-Plan Pie
National Infrastructure Takes Center Stage
Steel Production Slowdowns Idle U.S. Plants
Abrupt Slowdown in Steel Industry
In Face of Weaker Demand, Steelmakers Consider Production Cuts
The Steel Situation: Production, Prices and Shipments
Resources
Steel Prices: Ready to Recover?
by Humeyra Pamuk
Reuters, Jan. 21, 2009
SBB Global Market Outlook (registration required)
Steel Business Briefing, January 2009
December 2008 Manufacturing ISM Report on Business
Institute for Supply Management, Jan. 2, 2009
World Crude Steel Production Decreases by 1.2% in 2008
World Steel Association, Jan. 22, 2009
What's Next: Manufacturing
by Joe Castaldo
Canadian Business, Jan. 26, 2009
Steel's Gains from U.S. Stimulus Package Difficult to Gauge (registration required)
Steel Business Briefing, Jan. 27, 2009
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2 CommentsThis article was written from a selfish investor's point of view.
The American steel industry shot itself in the foot when they allowed the comodities buyers to artificially drive up steel prices, and the producers just went along with it.
Those who use the steel went out of business left and right, making a comeback slower. If it happens again, many of our metalworking machines will be melted down, and further hindering a superpower like the US to recover at a decent pace.
Steel companies and investors, hear this: Be less selfish and sway away from the get rich quick scemes. Do the right thing and let's grow together.
January 27, 2009 3:01 PMI do not believe the re-rolling sector of the steel industry had any choice but to pass on the steel price increases which were thrust upon them by the top 5 steel producers of the world. They had little option but to pass on the increases in order to stay in business having already reduced their in house costs. Governing bodies should look at the comparison in price increases across the piece even with exchange rate variance the net increase was the same irrelevant of County of origin.
Steel producers world-wide will shoot themselves in the foot once more if they follow the same pattern which resulted in price hikes in 2008 - reduce production to increase demand and price !!!
Countries across the world should return to being self sufficient were possible. The UK for instance once the steel capital of the world is reliant on outside source for most of its base materials. The same principle applies to Coal which is imported at tremendous cost because all the mines in the UK were shut down leaving millions of tonnes of coal un tapped - demand for this commodity and the price of has now led to a major re think and voila we are now re-opening mines.
Only when manufacturing becomes the base of any economy will we be protected from financial disaster. The UK is no longer the Financial Capital of the world indeed no one country can be as recent events have unveiled. Incompetent and ungoverned speculators and a banking sector which appears to be above the law almost bought all the world economies to their knees.
January 28, 2009 6:31 AM
