Some stability achieved in global flats markets, caution still required

Monday, 05 October 2009 13:57:33 (GMT+2)

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Within the context of the deep crisis faced by the global economy, flat rolled prices have been on a continuous decline during the past year. While the Asian flat rolled markets have slowed down slightly, the European and US markets have shown a 40 percent reduction in business during the period in question. The main causes of such a fall in trading are, on the one hand, weak market demand, and, on the other hand, the desire to keep inventories under control. In addition, global traders have been coping with an out-of-control Asian market, which has made it difficult to keep prices stable.

Overall, the present sluggish situation in the steel markets points towards the following factors:

a) purchases have been taking place at bare minimum levels;

b) financial restrictions are pushing firms towards new sorts of material suppliers;

c) ongoing destocking activities.

The crisis has brought about some changes in the export markets as well. For instance, Chinese flat rolled export sales have registered a record decrease of 66 percent year on year, whereas other countries have experienced an average decline in export sales of 30 percent.

The global steel markets hit bottom during the May-June period this year. However, in recent weeks flat rolled trading has registered some recovery. Consequently, flat rolled prices have improved and now seem quite stable.

Following the stabilization of flats demand and the increased demand from the automotive sector (where it seems that firms want to build up their stocks and so be ready to meet short-term sales), the decline in prices of hot and cold rolled products earlier this year started to slow down and come to a halt.

As for the US market, flat rolled products recently showed a strong decline in prices. US market operators are hoping that President Obama’s announced reforms will bring greater confidence to the steel sector and have some positive influence on trade. The reforms in question are very important in order to overcome the recession. The coming period is expected to be critical. Most of the world’s steel producers and traders rely on contagious American optimism.

Chinese flats production in June-July this year reached record levels, being much higher than local needs. For now, this should not represent a risky situation for markets in the West. Most of China’s stocks are blocked by credit institutions, and so they cannot be made available for sale. Furthermore, made in China materials are of lower quality as compared to materials from Europe and North America. Therefore, the Italian market is not going to be a Chinese export target, though it is more likely to be an export target of Great Britain, which possesses better market conditions at the moment.

The Arab countries are among those which have suffered to a greater degree from the recession, especially if we consider their triumphal steel market activity last year. The Arab markets are now slowly improving, although they are still precarious and their recovery was halted during the Ramadan period. A different case is represented by Ethiopia, where not-so-high inventory levels have allowed market operators to react with greater ease.

India is the only country which has not been touched by the global market decline, thanks to its strong and well-based steel demand. Generally, the Asian markets are expected to register a six percent increase compared to 2009, although last year’s results still remain unreachable. Government actions to boost economic activity will also be very important. According to the World Bank, next year China will see an increase of 7.2 percent in national business activity compared to 2008.

In conclusion, the current circumstances seem to have created some stability in the markets up to the end of the year, as the worst effects of the recession have passed on. Nevertheless, it will be necessary to keep a wide open eye on the market trends, as in such a fragile context relapses cannot be completely excluded.

*Coutinho and Ferrostaal commands a leading position in the international steel trading market with around 340 employees worldwide at 58 locations in 28 countries. The company has a trading turnover of about four million mt of steel, worth about US$2.5 billion. Its three key global trading hubs are in Houston, Texas, and in Hamburg and Essen, Germany. MPC, Grupo Villacero and MAN Ferrostaal each hold a one-third share in Coutinho and Ferrostaal.

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