/Rusmet.ru, Victor Tarnavskiy/ There are few days only left till the Catholic Christmas in Western countries. Activity in regional markets decreases before the holidays. The U.S. and European metallurgists face Christmas with optimism. The quotations for steel products (first of all, flat steel) were increasing in recent weeks, and the manufacturers count on the resumption of this growth in January.
In the USA leading steel melting companies announces long products prices increase by $45-70 per Mt and flat products prices increase by $55-90 per metric ton in January. It is assumed that in the beginning of 2010 average price for rebar in the eastern part of the country will exceed $530 per ton EXW, and HRC will cost not less than $600-620 per ton EXW.
The Europeans’ plans look more uncertain. As early as in the first half of December HR steel prices of European metallurgical plants stabilized at the level of 360-400 euro per ton EXW (the lowest quotations were in Balkan countries, the highest - in Western Europe). Due to somewhat decrease of euro exchange rate the prices in dollars decreased in recent days to $517-575 per ton. Rebar is offered by European companies at 340-360 euro ($489-517) per ton EXW. Unlike the USA neither large European manufacturer have not announced its quotations for the Q1 of 2010. However, most analysts say that flat steel prices growth is possible.
The market participants realize that the prices increase is temporary and is explained mainly by stockpiles refill, which is made by rather big traders than end users. Obviously, as early as in the second part of February the demand for steel products in Western countries will fall and the prices will go down. The fact that prices in the USA grow faster can be explained by, first of all, better situation in the U.S. economy comparing to European and more optimistic expectations of local consumes. Most experts believe that EU countries will start to overcome the crisis gradually as late as in the second half of 2010; the official forecast of the European Commission gives to EU-27 only 0.7% growth in 2010 and 1.5 % growth in 2011. Automotive industry is outlined against the general background at both costs of the Atlantic, since it is supported by the governments of some countries. But generally industry and construction are in rather difficult situation.
As per the estimations of the international rating agency Fitch, steel products demand recovery in Western countries will be rather slow and will take another 1-1.5 years and the return to the before-crisis level will be likely to happen in 2013. In this connection the U.S. and European metallurgists will have to work at partly loaded capacities for long time. According to the “The Wall Street Journal" newspaper with the reference to an anonymous source, Arcelor Mittal, the world biggest steel manufacturer is planning its activity on the basis that in the nearest four years it will have to load its capacities averagely by 70 %.
Arcelor Mittal did not confirm this information, but the estimation looks rather probable, at least for next year. According to American Iron & Steel Institute (AISI) in the U.S. metallurgy capacities load in the first half of December was less than 65%. Global November characteristic was 75% according to World Steel Association. However, if we exclude China with peak output volumes, capacities load in the “rest of the world” is to fall to less than 70 %.
At that metallurgical companies are likely to take measures to avoid excessive supply in early 2010. Steel production volume in October occurred to me maximal this year, in November it decreased to 107.5 mio tons, by 4.2 % less than a year ago. In the “rest of the world” countries (excluding China) there was 14.4 % growth comparing with the crisis November 2008. Totally in 11 months of 2009 1088 mio tons of steel were produced in the world, which was by 10.8 % less than in the same period of last year. Obviously, resulting figure of 2009 will amount a little less than 1.2 bn tons, which comply with 9.8 % decrease. The output in 2009 is estimated as about 630 mio tons (excluding China), which is almost by 24 % less than in 2008. The decrease in the EU-27 amounted 30% comparing with last year, in the USA - 35.5-36 %.
However, it is easier to rise from a low base. If in 2010 the EU and the U.S. metallurgists produce at least the same volumes as in Oct.-Nov. of 2009 (i.e. with 65 % capacities load), they will exceed 2009 figures by more than 20%. This gives some hopes for the future. In Western counties’ metallurgy no bankruptcies are expected in 2010, despite the losses in 2009. Blast furnaces and rolling mills will rather resume working than stop.
Nevertheless, the task for steel manufacturers is not easy. Fitch forecasts iron ore prices increase by 10-20 % in 2010, scrap - averagely by 20 %, coking coal - 30-50 %; average expenses of steel melting companies for energy are to grow as well. In this connection metallurgists will have to increase the prices for their products by at least 15-20% to the level of Q3 2009, when they started to receive profit. In Western countries HRC prices are to be not less than $600-650 per ton EXW, and rebar - not less than $550-580 per ton EXW.
That is why the U.S. companies raised prices in Nov.- Dec. Although this increase was not long and will change for the decrease, which can last till the end of the Q1, the traditional spring-summer increase can be started from higher level than in the crisis 2009.