Spot HRB Prices off the Bottom

One of the steel industry’s special characteristics is that most steel products are only made to order.  Not much steel is produced to be put into longer-term inventory.  Hence, because new orders for steel since July have been remarkably low the world over, the steel companies have been forced to undertake massive production cutbacks.  In fact, the cutbacks in global steel production have been so huge – i.e., down to about a 950 million tonne annualized rate at present from a 1.45 billion tonne annualized rate in the second quarter of 2008 – it’s almost certain production has fallen below real demand.  Apparent steel demand has plummeted in part because buyers have been determined to deplete excess inventory in their system regardless of the price of steel in the marketplace.  Why?  Cash is King in today’s chaotic financial world.

Of course, once steel buyers’ inventories have been depleted and the mills are producing at a rate below real demand, it’s only a matter of time before a systemic shift occurs.  Apparent demand rises and the “pricing power” shifts to the favor of the sellers.  Interestingly, so far in this downturn, the steelmakers that produce hot-rolled band in many countries have experienced little erosion in their market dominance.

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