The Hindu Business Line : Slowdown in steel output may arrest price fall

Declining trend
September production pick-up was slightly muted compared with the previous few years.
In the US market, prices are down from nearly $700 a tonne two months ago to below $650/t.

Mumbai , Oct. 23

Steel prices are falling; but recent slowdown in production may arrest the downside. Production is growing but not quite so fast as per latest data available.

In September, world production grew by 8.8 per cent year-on-year, down from a peak of nearly 15 per cent in July but slightly above that of August, according to data released by International Iron and Steel Institute.

Muted pick-up

July and August are typically fairly weak months for production due to holiday shutdowns, particularly in Europe; and it could be argued that the September production pick-up (over August) was slightly muted compared with the previous few years, commented Macquarie Research Commodities in its analysis.

Production growth rates

Production growth rates have slowed in recent months in the US and Europe.

While the US production is up by 3.5 per cent year-on-year in September, European production is up by just 0.9 per cent year-on-year.

World production growth ex-China is down to 3.9 per cent year-on-year from rates of over 10 per cent in June and July.

`Good news'

The slower production growth is good news in so far as it shows producers are reacting to recent weakening in demand, and moving early to limit the downside for prices, argued a Macquarie analyst.

There has been some slippage in prices in the past two months, particularly in the US market where prices are down from nearly $700 a tonne two months ago to below $650/t.

In the Asian market, Japanese export prices have reportedly dropped to $520/t from $600/t.

Weakness in demand in the US where carmakers have announced substantial cuts in production plans leaves that market looking vulnerable to further price falls, argued the analyst, adding that the decision by Mittal to shut two blast furnaces, together with maintenance shutdown at US Steel and others, is likely to limit the downside.

Slowdown indicators

The strong positive correlation between global economic growth and industrial metals consumption is well known. Leading indicators point to a slowdown in western world growth, but Asian demand is seen on course because of continuing large investments flowing into infrastructure development.