Steelmakers' financials imploding. Diminished orders and increased price competition.

Hot-rolled band pricing “death spiral”

Hot-rolled band prices seem to be in a phase of accelerating decline even though they are already down substantially.  To make matters even worse for the mills, shipment levels remain extraordinarily depressed in many countries and on the world export market – with few signs of a sizable improvement as of late February 2009.  In fact, the spurt of orders for hot-rolled band by Middle Eastern and Chinese buyers, that occurred in January and early February, is gone say our contacts. 

The decline in apparent steel demand in 2009, when measured from the peak annual rate in the second quarter of 2008, will be huge.  On this basis, global apparent steel demand in 2009 may be down 29% - composed of a decline of 40% in the Advanced Countries, 30% in the non-Chinese Developing World and 17% in China (where the outlook is deteriorating).

Financial losses will be huge for many steel companies in the first half of 2009 reflecting the sharply reduced prices, poor volume, inventories of high-cost raw materials that need to be worked through the income statement, and only minor savings from the purchase of iron ore and coking coal (negotiations are still underway).  And, if the steel mills pass on their raw material cost savings as the year progresses, which may be a 50:50 possibility, financial results in the second half of 2009 may be almost as bad as the first half.

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