Global steel stocks got a jolt on Monday, as Swedish steel maker SSAB AB painted a bleak outlook for its third quarter performance. The company reported revenue of Swedish Kroner (SEK) 46.4 billion ( 38,050 crore today) based on the trailing 12 months financials. Its chief markets are the Americas and Europe, Middle East and Africa (EMEA).

SSAB said it expects third quarter performance to be worse than expected and is likely to report an operating loss of SEK700 million, including provisions for non-recurring costs. That compares with a profit of SEK755 million in the June quarter. Volume growth has turned weak, especially within strip products, and its EMEA capacity utilization for strips has been only 60% so far in the quarter. It said European customers—especially in the north and south—have been hesitant. Demand in the Americas and China has been expectedly weak.

What’s worse is that falling iron ore prices, which should have been good news for steel makers, are exerting a downward pressure on steel prices, it said. It could take away the benefit of cheaper raw material prices, as end-users—who are themselves under stress—push suppliers to pass on cost reductions.

Global steel production in July rose by 2%, with Europe and the Americas pulling down growth, while Asia was surprisingly resilient, with China’s steel output rising by 4.2%. The data for August from the World Steel Association will be out in less than a week, giving an idea of how widespread the problem is. Last week, a report on The Wall Street Journal’s online edition said China’s daily average steel production in August fell by 5% over July.

One implication of these developments is that Tata Steel Ltd’s consolidated results are likely to see a fair amount of pain from its European operations. A downward pressure on steel prices could be another concern, if the trend settles in. Demand has slowed and rose by only 4% year-on-year in August, according to Joint Plant Committee data.

Nomura Securities Co. Ltd, in a report dated 10 September, said its 8% steel demand growth forecast in 2012-13 is at risk if the second half does not see an improvement. Noting that domestic steel prices have fallen by about 1,000-1,500 per tonne in the past month, the report points out that Chinese export prices have fallen further and domestic steel prices may dip further.

Indian steel companies and their investors have reason to be concerned about performance in the near to medium term, though the situation does not appear as dire as that of their European counterparts.

Close