Steel demand recovery to limp on. According to a number of major steelmakers, steel demand recovery will be slow during the early months of 2010. ArcelorMittal said in presenting its worse than expected Q4 2009 results that Q1 2010 would be tough, with only “slow recovery underway,” and rising costs.
This sentiment was echoed by the US Steel Corporation, which anticipates another quarterly loss in Q1 2010, while Eurofer, the European Steel group, expects that by the end of 2010 steel consumption will have risen by 12.5% year-on-year, from a 35% slump in 2009.
This is a modest recovery indeed, at least in the mature Western world markets. In the immediate term, prices are likely to rise only modestly as orders increase, but rising costs for iron ore and coking coal will increasingly be passed on to steel prices as demand strengthens.
Chinese iron ore imports fall 25% in January to 46.62 Mt. This collapse in the world’s biggest importer of iron ore has more to do with bad weather, and a slowdown in steel output due to the Chinese New Year period happening early on in the year, rather than a sign that Chinese demand for iron ore is drying up.
However, it is a figure that the Chinese iron ore importers will no doubt do much to promote in the run-up to the always-fractious discussions with their suppliers over the annual price setting contract talks. The China Steel Association (CISA) has already stated it wants to reduce China’s dependence on iron ore imports, but that is dreaming, since China’s crude steel output will likely exceed 610 Mt this year – up from 570 Mt in 2009.
However, with CISA helping to add supplementary rules to the recently released ‘Chinese Iron Ore Import Trading Self-Regulations’, affecting about 70 steel mills and 42 traders, there might be less room for speculatively-driven imports than in the past. According to CISA’s estimations, China imported 68 Mt more iron ore than required in 2009. Nevertheless, we expect the annual iron ore contract price to rise by at least 25% for the contract year starting 1 April 2010.
Short-term outlook on Steel
Rising costs for raw materials and electricity will weigh on margins and demand will be too weak for prices to rise too fast too soon. We do not expect 2010 therefore to be a comfortable year for steel producers, but it will be light years ahead of 2009.
Furthermore, we do not expect 2010 or 2011 production (outside of China) to approach 2008 levels, but prices will surely lift so long as OECD economies steadily improve. LME 3-month short-term price: Steel Med: $425/t.