The Zigzag Demand Of Steel Dents Funding
By Benny
Posted on : 6/26/2010
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The uncertainty of the market condition frets a lot the steel producers in funding the money
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In the midst of upbeat growth clouted by India in the global industries the steel producers are in fret a lot even though their planning is big but funding money in to them has not been easy. It is not because of the shortage of money in bank but it is due to the uncertainty in market potential.
I know it sounds weird but that is what happening.Concerning the finished steel first it appears domestic consumption of china slowing down less than the consumption growth rates of all BRIC countries.Through these we can consider China will look forward to export more of its steel than ever before. Mainly South Korea and India are the favorite market of China. However South Korea has been expanding its own capacities. Due to this around 6 to 8 million imports will be cut by South Korea in a year said ChanghoKwag, director of Posco Research Institute, at a Metal Bulletin Steel conference in Mumbai last month.
Hence the import of hot rolled products is to decline from 25% to 15% and for steel plates from 50% to around 30%.
Due to this cutback on imports denotes that surplus steel from both Japan and China will have to find other markets in South and South-East Asia. This is because steel remains a freight sensitive commodity,and longer distances add to more freight charges substantially. This could mean that both these countries are likely to target India for their markets.
According to M Venkatraman, director, Essar Steel, Demand for steel by China expected to hit the upper limit. Already it noticed that China has reached a high level in Steel Consumption per head, comparing with those of the industrialized countries. The present demand of 30 to 50million ton will not continue so long.
True, demand will surely grow in India, Brazil andAsean countries, but the growth in tonnage is likely to be far below that realized in the past 10 years by China. Their growth cannot fully compensate for Chinese demand becoming flat.”
He expects demand in North America, EU and Japanwould at best be equal to the levels before the Lehman shock or even lower.Slow domestic demand and the shifting of steel consuming industries to other countries would be the main reason for this rate of decline.
The recent withdrawal of export subsidy of $50-60 could be a biggest relief for India which China’s steel producers got from the government. Also, if the yuan appreciates, China’s exports will become more expensive.
There is also trouble for Indian steel producers on the raw materials front, thanks again to China. The first sign of trouble came from the unilateral decision of major iron ore mining companies like Rio Tintoto replace annual contracts by a three-month spot price for iron ore.
This will greatly increase the risk of price volatility in iron ore and scrap, which in turn will have a negative impact on the entire steel supply chain.
Due to the unpredictable prices for raw materials finished steel prices likely to be depressed by dumping of steel from China and Japan, lenders have found advancing working capital to steel companies that much more problematic.
Owing to this several steel projects has also been affected by the financial closure, as there is no clarity on the kind of prices they should expect on the raw material front.
However, it appears there will be turbulence in the near future, but high demand is there for nearly 5 to 10 years terms.
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About the author:
For the past three years I have been working for RecycleinME
.To help our valued members of RecycleinME, I involved in researching the current
market trend of various scrap materials.
Regards
Benny
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