MEPS (International) Ltd. reports that global markets continue to be oversupplied. By mid-year, world output of steel was 7.6% higher than the same period a year earlier. MEPS attributes the oversupply to continued overproduction in Asia, particularly China. Steel supply has been reduced recently across Europe, North America and South America. The situation is now recognized as being so critical that South Korean, Japanese and Taiwanese steelmakers are also cutting back in an effort to prop up prices.

The oversupply situation across the globe has resulted in the MEPS World Average Flat Product Transaction Price falling for four consecutive months. An appreciation of the Asian currencies could lead to a small rise in August. Further decreases are anticipated, albeit at a more modest pace, until March of next year. MEPS detects no signs that the Chinese steelmakers will bring output more in line with domestic demand in the near term. The actions in Europe and the Americas will almost certainly be offset by higher Chinese supply.

A global steel price revival could be expected in the second quarter of 2006 if the Chinese authorities undertake more stringent fiscal measures to stifle output and reduce or eliminate export rebates. Substantial flat products capacity is scheduled to come on stream in the short term, adding to an already difficult situation.

The MEPS World Average Long Products Price fell once again in July — the seventh consecutive monthly decrease. The rate of reduction has been much slower than in the flat products segment because the panic buying was less intense in 2004 in the long products' categories. MEPS forecasts further price reduction over the next few months to March 2006. Oversupply in Asia is likely to lead to further decreases in scrap costs. Asian excess material is expected to put downward pressure on prices around the world as suppliers try to export their oversupply.

Source: MEPS — Steel Prices On-Line