Stamping Out a Living

After a year of reading these kinds of reports and trying to figure out what it all means, I've come to the conclusion that it matters greatly who is talking, where they are talking and whom their comments are really addressed to. This "steel prices will come back" talk I've heard in the last while seems to be only coming from steel companies, and only when talking (directly or indirectly) to their shareholders.
Business Report
Johannesburg - Global steel prices were likely to rise in the third quarter of this year and stay up to the end of the year, Davinder Chugh, the chief executive of Africa's biggest steel maker, Mittal South Africa, said on Friday.

Chugh forecast stronger local demand in the second half of the year compared with the first half, driven by South Africa's push for infrastructure projects worth billions of rands and by fresh construction in the run-up to hosting the soccer World Cup in 2010. He said steel prices might stay weak until then.

'Although the underlying steel demand is still fairly strong, buyers of steel are holding off with their buying decisions in expectation of a drop in prices.

'It is our view steel prices will start to increase again in the third quarter of 2005.'

He said that steel prices had stopped rising as companies in Europe and North America reduced their inventories and as demand slowed in the Far East, especially in China, but that this would be short-lived.

'Historic levels of 2004 may, however, not be seen in the short term. Substantial price increases for raw materials like coal and iron ore will provide a support to steel prices.'

For example, MEPS (an independent steel consulting service located in England but providing consultancy around the world) wrote this month about the North American market:

The North American flat products price fell by 5.5 percent in May. This was substantially more than our expectations when we prepared the last forecast. An inventory overhang continues to plague the market and has put extreme pressure on steel selling prices.

It is now clear that the stock levels throughout the supply chain were higher than was being admitted earlier in the year. Moreover, they are being unwound at a much faster rate than previously envisaged as customers are placing orders only to fill gaps in their inventories. The price trends for the commercial grades of plate are coming into line with strip mill products - partly as a result of strong import pressure.

We forecast further price deterioration in negotiations up to the end of the year. Demand is not likely to pick up over the next six months. The inventory depletion phase is expected to last until near the year end. We anticipate an upturn in prices as the Spring approaches in 2006.

The North American long products price in May held up slightly better than we envisaged. This was the result of the increase in scrap surcharges compared to the previous month, the seasonal pick up in real demand and inventory reduction.

The scrap surcharge is likely to decrease once again in June. Consequently, our forecasts for the four main long product categories to May 2006 remain virtually unchanged from the previous month's figures. A steady decline in transaction values is anticipated for wire rod, structural sections and merchant bars. A seasonal upturn for reinforcing bars is likely soon.

Now, for most stampers, who use coil stock, the part you care about the most is the "long product" section. "Flat products" are sheet and plate - basically quite different paths through quite different equipment after it leaves the blast furnace. So the different forms of steel actually follow different paths after processing, and delays and capacity issues in the later processing form slightly different sub-markets, with their own pricing and lead time differences.