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MEPS Predicts EU Steel Prices will Recover in Next Twelve Months
08/25/2009 - Despite a predicted revival in steel sales in 2010, MEPS does not foresee a full return to previous price levels during its forecast period.
After peaking in August 2008 at €860 per tonne, the MEPS EU average flat products' price dropped to €420 per tonne in May — the lowest figure in more than five years.
Weak market conditions pushed end-user demand to extremely low levels; forced distributors and steel processing companies to reduce inventories; and led to continuous reductions in steel prices into the second quarter of this year.
In response to the lower demand, steel mills cut output significantly, restricting supply and contributing to the bottoming out of steel prices over the last two months. Steel-making capacity utilization rates fell to about 53% in the first half of 2009.
Weak market conditions pushed end-user demand to extremely low levels; forced distributors and steel processing companies to reduce inventories; and led to continuous reductions in steel prices into the second quarter of this year.
In response to the lower demand, steel mills cut output significantly, restricting supply and contributing to the bottoming out of steel prices over the last two months. Steel-making capacity utilization rates fell to about 53% in the first half of 2009.
Stock reduction is almost complete in the flat products segment, according to the agency. Customers ordered larger volumes in recent months from domestic producers to fill gaps in their inventories, helping steelmakers to push through modest advances in transaction values for strip mill products.
MEPS forecasts that the price recovery will continue in the short term for all steel categories. Distributors are expected to resume their restocking efforts after the summer period, scrap costs could move higher, and customers will “almost certainly” increase order volumes in an effort to buy ahead of further perceived advances.
The agency offers a cautionary note for the remainder of 2009, however: because end-user consumption is likely to stay low, there are still downside risks to steel prices. Industrial production is predicted to decline by about 15%, year-on-year.
European mills have also started to ramp up output due to rising sales. Steel-making capacity utilization rates rose above 60% in June. Oversupply could develop, however, if producers increase activity too quickly, MEPS warns.
The strengthening economic situation will likely spur further inventory replenishment by service centers and end-users during the first half of 2010, says MEPS. This should help local steelmakers to push through price advances early in 2010, and mills are expected to lift production and return to profitability in this period.
Despite a predicted revival in steel sales in 2010, MEPS does not foresee a full return to previous price levels during its forecast period.
Source: MEPS - European Steel Review
The strengthening economic situation will likely spur further inventory replenishment by service centers and end-users during the first half of 2010, says MEPS. This should help local steelmakers to push through price advances early in 2010, and mills are expected to lift production and return to profitability in this period.
Despite a predicted revival in steel sales in 2010, MEPS does not foresee a full return to previous price levels during its forecast period.
Source: MEPS - European Steel Review
