Leading global rating agency Fitch Ratings has issued its global steel outlook report. According to its report, Fitch expects the current sharp contraction in steel demand to continue to weigh on steel production and pricing through the first half of 2009. While in the short term the steel market will remain in a downturn, Fitch says the vast majority of the steel industry is stable.
Demand for steel has weakened sharply since August 2008. Global steel production declined 12.4 percent year-over-year in October 2008, following a 3.2 percent year-over-year drop in September 2008. The cuts that have been announced will result in sharply lower production through the first quarter of 2009.
According to Fitch, demand for steel should improve following the aggressive expansion of central bank liquidity provisions since early September, in combination with major fiscal injections into the US and European banking systems, as well as major stimulus packages announced for China and expected for the US.
Fitch expects real demand to begin to recover within the second half of 2009 Steel and raw materials prices may begin to recover before then, signaling that stocks have been liquidated.
"Spot raw materials prices have fallen sharply following destocking and declining steel production. Contract prices for iron ore and metallurgical coal are expected to be 20-40 percent lower than last year. Freight rates have fallen as well, which should result in lower costs going forward," adds Fitch.