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Global steel outlook hinges on China, US and West Asia

Global steel outlook hinges on China, US and West Asia
AFP
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First Published: Sun, Apr 12 2009. 11 20 PM IST
Updated: Sun, Apr 12 2009. 11 20 PM IST
Paris: Steel is on edge and the global industry is cutting back hard, hanging on for either a budget blast from China, new credit for vast West Asian building schemes or resurrection of the US auto industry.
Demand has dwindled and steel makers, including the giant of them all, ArcelorMittal, are damping down surplus furnace capacity while waiting for credit to flow, construction cranes to turn and factories to roll. A decision by ArcelorMittal last week to pursue temporary production cutbacks, slashing European output by more than half from the end of April, according to a union source, dramatizes the extraordinary ride and role of steel in the last few years.
In just months the global industry has gone from a boom driven largely by China, emerging markets and a property extravaganza in West Asia to a narrow line between excess capacity and the costs of waiting for recovery. “Over the past six months, demand for steel has dropped dramatically and, as a result, producers have been cutting production,” analysts at Barclays Capital said in a study last week. In another report, Morgan Stanley predicted “the current demand shock to lead to excess steel capacity”. Consequently, the bank said, steel plants should operate at rates below 75% of capacity until 2012.
“The steel market is not very different from base metals as a whole, but steel has reacted more rapidly and dramatically since September,” said commodities analyst Perrine Faye of London-based FastMarkets Ltd. She said the future of the steel industry depended on three factors—the impact of Chinese economic stimulus efforts, a pick-up in West Asian construction sector and a revival of the once mighty US auto industry. Chinese imports and exports are at a standstill.
In West Asia, according to Faye, the big problem is a shortage of credit, notably for real estate developers and builders.
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First Published: Sun, Apr 12 2009. 11 20 PM IST