The Hindu Business Line : Global steel prices to go up in ’08: Fitch

Mumbai, Dec. 11 Global credit rating agency Fitch expects steel price to increase in most markets in 2008, and says tight raw material markets are likely to cause margin compression for producers who do not control their sources of iron ore, coke, pig iron and scrap.

Increased iron ore, coke and freight costs are expected to add $60-$70 per tonne to costs of blast furnace steel without vertical integration.

While growth in global steel demand is expected to run about 6-7 per cent annually over the next 12-18 months, excess production could be a drag on pricing and further pressure tight raw material markets. Regional variations in pricing and profitability will re-emerge given high freight rates and protectionism.

Fitch expects steel prices to rise on average $30-$50 per tonne, or half of what would be needed to pass through expected increased costs due to robust demand from emerging markets and supply discipline in China.

Consolidation

The global steel industry will see further consolidation in 2008 as producers seek to diversify geographically, rationalise production and gain additional access to raw materials, it said.

Strong consumption trends in developing nations are offsetting weakness in the US. The overall ratings outlook on the industry is stable.

Fitch expects the US economy to stay out of recession, despite continued weakness in residential construction and emerging weakness in consumption. Further, credit tightness that results in cutting non-residential construction or manufacturing expenditures would reduce the US demand for steel. Steel demand in the US has been soft with prices currently supported by low shipments, low inventories and reduced imports.

Strong euro

The dollar may weaken with further interest rate cuts. Given the weak dollar coupled with high freight rates, the US market will become fairly isolated. Europe, with the strong euro will likely be the preferred destination for exports, but even then freight rates may be a limiting factor.

The rating agency says production in China had exceeded domestic demand since the end of last year, weighing on domestic pricing as well as pricing in Europe and the US for some products.

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