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Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Jon Koplik who wrote (7323)	9/28/2006 12:05:06 AM
From: Jon Koplik	Read Replies (1) \| Respond to of 33421

WSJ -- U.S.'s Mounting Steel Stockpiles, Weak Demand Fuel Fears of a Glut .................... September 28, 2006 U.S.'s Mounting Steel Stockpiles, Weak Demand Fuel Fears of a Glut By PAUL GLADER Inventories of steel have been piling up in customer warehouses in the U.S., creating worries of a glut and downward pressure on prices. The rising supplies come as U.S. auto makers are cutting back domestic production, and could be a sign of weakness in some other parts of the U.S. manufacturing sector. Service centers, which buy 30% of the steel sold in the U.S. and resell it to manufacturers, report that inventories are at the highest level since January 2005, with 15.9 million tons on hand, or 3.1 months of supply in August. That is down from 3.4 months of supply in July, but up from the 2.7-month supply in August 2005, according to the Metal Service Center Institute, based near Chicago. Meanwhile, year-to-date steel imports into the U.S. are 40% higher than a year earlier, as steel makers elsewhere seek out higher U.S. prices. With 30 million tons imported through August, imports are on pace to exceed the record 41.5 million tons in 1998. Much of the imported steel is coming from China, which has increased production by double-digit percentages. Some analysts suggest some of the world's largest steel companies might curb production to reduce oversupply risks and prevent volatile pricing swings. Several steelmakers made a similar move, successfully, in 2005 as a glut developed. In that case, steel prices fell steadily for 10 months but didn't crash as they have in previous cycles. At this point, a steel glut seems imminent, said Timna Tanners, a steel analyst with UBS Research in New York. Her firm has downgraded stock recommendations on U.S. Steel Corp. and Nucor Corp. At worst, she said, prices will decline as steel sellers get rid of excess inventory. "At best, steel prices aren't going to be going up," she said. DaimlerChrysler AG's Chrysler Group has said it plans to cut production 16% in the second half and could face a restructuring, while Ford Motor Co. has announced plans to lay off one-third of its U.S. work force and close 16 factories by 2010, which would cut its North American production to a range of three million to four million vehicles a year. Appliance makers could reduce production in the next year because residential construction has cooled, meaning less steel is needed for appliances going into those homes. "This is the time of year when you do not want prices to fall," Ms. Tanners said. "You are in the middle of your supply negotiations with auto and appliance companies for annual contracts." World Steel Dynamics Inc., an Englewood Cliffs, N.J., research firm, reported a 3% decline in recent weeks in the price of hot-rolled coil, a common base product used in manufacturing autos and appliances. The price of that product has fallen to about $594 a ton, from $614 a ton. Ms. Tanners predicts that, while demand for a few steel products might remain healthy, prices of major flat-rolled products could make a slow slide of about $100 by the end of 2007 to about $500 a ton of hot-rolled coil. Other analysts said they believe the industry has started factoring in the oversupply and suggest demand will continue to buoy steel prices and profits for the rest of the year. Steel customers say large producers such as U.S. Steel Corp. are maintaining earlier announced price increases, but smaller companies such as AK Steel Holding Corp. and Algoma Steel Inc. are underselling them at times. The three companies declined to comment. "There is just a lot of inventory around," said Brian Robbins, chief executive of Mid-West Materials Inc. "People think it may take the whole fourth quarter to burn through this softness period." Raw steel production in the U.S. is up 9.4% from a year earlier to 65 million tons through July. Many point toward China, again, as the culprit in overproduction this year. Production in China is up 17% so far this year compared with last year, while production in all of Asia is up 12.9%, compared with production increases of 10% in the former Soviet Union and 9% in Europe. Write to Paul Glader at paul.glader@wsj.com Copyright © 2006 Dow Jones & Company, Inc. All Rights Reserved.

To: Jon Koplik who wrote (7323)	9/29/2008 12:28:40 AM
From: Jon Koplik	1 Recommendation Read Replies (2) \| Respond to of 33421

WSJ piece mentioning price of "hot-rolled steel" .................................. Does anyone know if this article's "hot-rolled steel" is the same as "hot-rolled coil" mentioned in the April 6, 2006 WSJ article (that I am replying to) ? Jon. ************************************************************** SEPTEMBER 29, 2008 Steelmakers See Demand Fall Sharply, Prices Decline By ROBERT GUY MATTHEWS Steelmakers in the U.S. are experiencing a sharp pullback from buyers who are spooked by the credit crisis and a slowdown in automobile and construction markets, causing inventories to rise and prices on some key products to drop 10%. Although weakening demand and prices are being partially offset by falling raw-material costs, particularly of scrap, some steelmakers already are cautioning that robust earnings from earlier in the year won't be sustained in the year's second half. "The instability of financial markets and the general slowdown in the commercial building sector are cause for concern in coming quarters," said George Stoe, chief operating officer for Worthington Industries Inc., an Ohio-based steel processor. Demand for rebar steel, often used to build roads, bridges and office buildings, has fallen dramatically in the U.S. because some projects are being delayed or put on hold amid the uncertainty in financial markets, steelmakers said. Exports for rebar steel fell in July, after six straight months of increases, indicating that demand from foreign markets likely won't be a substitute for weak domestic growth. The Precision Metalforming Association reported in its latest outlook that more incoming orders from steel fabricators, which shape and form steel for items such as appliances, are expected to drop over the next three months largely because of the uncertainty in the credit markets. Steel service centers, which act as middlemen between steelmakers and steel end users, also are reporting that their inventories have been ticking steadily upward over the past few months. Steel users are limiting their steel purchases and only buying what they immediately need, fearing that they will be stuck with high-priced steel sitting in their factories. Hot-rolled steel, a basic building block for most all steel products, is selling for about $1,000 a short ton, off about $110 from earlier this year. That is still relatively high, which should cushion steelmakers' profits. Many steelmakers are using the slowdown to schedule maintenance outages in hopes that demand will pick up later in the year. ArcelorMittal, the world's biggest steelmaker by production, said that it aims to reduce output by about 15% in certain countries this year. Other steelmakers are likely to follow suit. Some steelmakers said some markets that consume steel to make pipes and tractors, such as the energy and agriculture sectors, are expected to stay strong. Write to Robert Guy Matthews at robertguy.matthews@wsj.com Copyright 2008 Dow Jones & Company, Inc. All Rights Reserved.