WSJ -- Demand for Steel in U.S. Slows; Prices Fall Six Months in Row ..................
Yet another item in a long list of signs that the Federal Reserve is dead wrong in their assessment of all those purported inflationary pressures that necessitate raising fed funds.
(F/X value of dollar is also indicating that the Fed heads are morons).
Jon.
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April 14, 2005
Demand for Steel in U.S. Slows; Prices Fall Six Months in Row
With Few Signs of Upturn During the Second Quarter, Producers Reduce Output
By PAUL GLADER
Staff Reporter of THE WALL STREET JOURNAL
Confounding earlier forecasts for continued high steel prices, demand for steel in the U.S. is beginning to slow, weakening prices and prompting steelmakers to cut back production.
After peaking last fall, benchmark steel prices in the U.S. have declined for six straight months and don't appear to be rising in the second quarter as a number of industry executives and analysts had predicted. As a result, producers are slowing output. Last week, International Steel Group, now a part of Mittal Steel, temporarily idled operations in Cleveland just 11 months after reopening that furnace, citing softening demand and inventory buildup at service centers. Nucor Corp. has scaled back production and U.S. Steel Corp. is scheduling temporary shutdowns for repairs. Some producers in Europe also are cutting their output.
The market in steel has been remarkably strong in recent years and continues to be so in China, India and Eastern Europe, which is bolstering prices for raw materials such as iron ore. The world's three largest iron-ore producers, based in Australia and Brazil, recently boosted contract prices by about 70% for steelmakers. Some markets in the U.S. are growing too, such as residential housing, railroad and defense.
But there are some troubling issues for the nation's steelmakers, including the disappointing outlook from their major customers -- auto makers. That comes at a time when steelmakers are paying more for energy and raw materials, such as iron ore and scrap. U.S. producers rely on North American iron- ore producers and have been less affected by global price increases.
Last fall, when prices were just beginning to slip because of increasing imports and inventory buildup, U.S. steel executives thought they would spring back starting in the second quarter of 2005 because they expected imports to drop and the U.S. economy to remain strong enough to consume inventory. However, prices have continued to inch downward in recent months, reflecting softness in certain product areas, like flat-rolled steel, which is used to make cars. Weakening demand in China, where economic growth has been slowing, also has tempered prices around the world.
"The first quarter has been good. But we think by the second half of this year, we will see the steel industry being affected" by expected slower economic growth in the U.S., said Tanweer Akram, an economist with Economy.com in West Chester, Pa.
Spot prices of hot-rolled coil, a key benchmark product used to make autos and washing machines, have dropped 20% to the current $575 per ton on the spot market from a high of $735 early in the fourth quarter. World prices also have declined. In Europe, the export price of hot-rolled coil, not including shipping costs, has dropped to $620 per ton, down from $640 in the fourth quarter of 2004, after a slight rise in the first quarter. In China, the price at $515 a ton remains level with fourth-quarter prices.
Peter Marcus, a partner in Englewood Cliffs, N.J.-based World Steel Dynamics, predicts further declines, with the world export price for hot-rolled coil dropping 22% to $450 per ton by the third quarter of this year, down from $575 per ton in the first quarter.
Steel production in the U.S. has dropped by nearly 10% in the past year, according to the Washington-based American Iron and Steel Institute, with companies using 83.3% of their steel-making capacity for the week ended April 9, 2005, compared with 93.3% a year ago.
Some experts blame a slowdown in auto production and in commercial construction markets, but others say steelmakers are simply reacting more quickly to a shift and deliberately are cutting production. "There's much more of a focus on taking capacity out of the system to keep supply and demand in balance," says Tony Taccone, a partner in First River, a steel consulting firm in Pittsburgh.
Besides the U.S. temporary shutdowns, European steel giant Arcelor said last month it will halt production on one blast furnace, keep a second blast furnace idle and create lower output at two finishing mills, reducing production of high-quality flat steel by about one million metric tons in the first half. It blames high inventory levels, imports and softening demand.
The European association of steel makers, Eurofer, said in a report that apparent consumption might increase only 0.2% this year, compared with 2004, when it increased 4.3% from year-earlier levels. "For the first half of 2005 in particular, there is a need to be aware of the danger of oversupply to the market," the February report warned.
Write to Paul Glader at paul.glader@wsj.com
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