Steel prices tumble on mine, factory slowdown

arcelormittal sa will slash steel prices for a third month running next month as demand plunges because of the global economic downturn.
the latest drop brings steel price cuts since the start of the quarter to more than 25%.
this development follows an announcement by mittal earlier this month that it had to cut production by a third because of falling demand.

the news foreshadows a gloomy fourth quarter for the steel maker, and points to further pressure on sa’s embattled mining sector in the face of falling prices and waning global demand for its exports.


on a positive note, the trend will help curb price pressures, and pave the way for interest rate cuts next year to give impetus to the slowing economy.

lower steel prices also bode well for the construction sector, which is also expected to benefit from price drops with other input costs such as cement, bricks and aggregates due to sluggish local demand.

increases in these input costs over the past few years have been among the most notable drivers of escalating costs of the government’s infrastructure programme.

arcelormittal sa, which earlier this month posted record earnings for the third quarter, would probably see a substantial plunge in profits or even possibly only break even in the fourth quarter “if things really turn bad”, mittal ce nonkululeko nyembezi-heita said on friday.


“prices cannot come down further because then we will be losing money,” she said.


but further price drops in the medium term may be likely as the financial market crisis spills into the real economy, ushering in a worldwide recession.


the steel producer said in a letter to customers that it would cut prices 12%-15% from the start of next month.

this follows price cuts of 10% last month and 5% in september. the cuts come after prices ratcheted up by as much as 72% in the first eight months of this year.


the steel price decline has been felt internationally with a sharp slowdown in demand for consumer goods such as motor cars and appliances while construction activity in many countries is also slowing.


nyembezi-heita said that the depth and speed of the slump in demand had taken everyone by surprise. but she said that south african producers still had it easier than those in many other markets because the government’s infrastructure investment programme was providing something of a buffer.


but nyembezi-heita was also confident that prices were bottoming with scrap-steel prices — an early indicator for steel — edging higher recently.


“on prices, i think we have seen the worst. on demand, i’m not so sure,” she said.


the volatility of steel demand had been compounded, she said, by china eliminating export taxes on steel and dumping 7,5-million tons of steel on the global market in one month.


china kept steel output in its domestic market to feed the building requirements for the olympics, which it hosted this year. however, more chinese steel is now available in the export market. that, coupled with constrained demand because of the global downturn, has caused a supply glut.


mittal sets its prices on the weighted average movement of steel prices in a handful of similar markets. the basket on which mittal sets its price includes germany, china, russia, and the us, but it also takes into account the direction of market movements and exchange rate volatility.

the rand has weakened by more than 27% this year on a trade-weighted basis.


mittal stock, which was trading as high as r164 at the beginning of last month, fell almost 1% on friday to r63,09 at close of trade while the share price of smaller peer, highveld steel & vanadium, rose almost 2% to r55.