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Steel 2010 rally may fizzle out

Brendan Ryan | Mon, 28 Dec 2009 13:34

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[miningmx.com] -- UK METALS consultancy GFMS is forecasting a recovery in demand for steel during the first half of 2010, but is concerned this could run out of steam in the second half of next year.

A report by the GFMS Steel Group said: “As the global economic performance improves through the first half of 2010, steel demand is expected to grow.

“As mills secure additional ferrous scrap and other raw materials, we expect steel prices to go up in line as conversion costs are already at marginal levels.

“In addition, inventory cuts through 2009 have left steel stocks in mature economies at low levels and this will require additional purchasing by distributors that will boost apparent consumption and help to push prices up further through the first half of 2009.

“However, we are forecasting that the global economy will only exit the recession slowly, while capital-intensive (and steel-intensive) construction demand will lag.

“The industry therefore runs the serious risk of excess supply and price weakness by the second half of the year - a trend that may be compounded by the beginnings of the withdrawal of Chinese stimulus.”

GFMS pointed out that steel output in China during the third quarter of 2009 was running at an annualised rate of close to 600 million tonnes (mt).

The consultancy estimated that China would produce almost 50% of global steel in 2009 compared with generating less than 10% of global GDP.

GFMS described this as “a clear mismatch that cannot be sustained indefinitely”.

The consultancy said it was concerned that when the one-off Chinese stimulus package was withdrawn, “the excess steel capacity will initially flood other markets but may also set the scene for an extended period of low margins and poor profitability for steel mills as the Chinese fifteen-year boom in capital investment ends”.

It said: “The end of the post-war North American and European investment cycle in the mid-1970s resulted in 30 years of restructuring, capital destruction and huge losses in their respective steel industries.”

GFMS said more than 1.3bn t of steel were manufactured in 2008, with an economic value of well over $1 trillion.

“Steel is a basic material present in virtually all industrial processes and construction applications, and is the most ubiquitous commodity market of all. Yet it remains relatively opaque.”



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