Steel prices expected to drop in 2012

23 December 2011

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31 December 2011 | Adam Leach

Global prices for steel will next year ease below the peaks experienced this year as worldwide production increases by three to five per cent, according to a report.

2012 Outlook: Steel Raw Materials, published this month by Fitch Ratings, reported that the increase in production would ease pricing pressure across the steel and iron ore sector. It concluded: “Prices should be below the 2011 peak but above 2010 prices over the next 24 months.”

Despite forecasting an easing, the report highlighted a number of factors that could alter the price picture. It noted that as China is responsible for 50 per cent of all steel production and 60 per cent of demand seaborne iron ore demand, the fortunes of the market are strongly bound to those of the country’s economy and also the recovery of the EU.

Explaining that this year economic turbulence had led to ‘destocking’ with companies shedding inventories for cash. Fitch suggested that political intervention could result in a price rise: “Monetary tightening in China and financial disruptions related to the euro zone debt crisis have resulted in abrupt destocking. Policy response to alleviate tight credit could result in modest restocking and improve steel raw material prices.”

Giving the company’s overall outlook on the market for 2012, the report said: “The outlook for the sector is stable. Fitch expects the recovery for steel and steel raw materials to stretch into 2013.”

In November, a report by management consultants Oliver Wyman, urged companies to develop staff skills, analytical tools and strengthen governance to shore up risk from commodity price volatility. The report said: “The majority of companies need to do more.”

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