Chinese Cutbacks to Have Dramatic Impact on Steel, Related Industries

The major steel companies have all been releasing some pretty grim forecasts as they look ahead. All they can see at this juncture is weakening demand globally -- they are already seeing many of their consumers cutting back drastically on orders.

China has been added to that list in recent weeks, and that causes the greatest concern. The facts have been accumulating for some time as the major steel consuming industries slump. There has been some limited recovery in the automotive sector, but there is nothing suggesting that robust recovery is imminent. (While we are on that subject, last week it was  reported that more than 13 million cars were sold in recent weeks and omitted to mention that was an annualized number—and therefore not as impressive as it appeared.)
Analysis: The price collapse is likely to extend well into 2012 unless there is some dramatic rebound in demand from some key sectors. The construction industry is the prime consumer for much of the steel output, and it is moribund the world over. There is nothing to suggest that this will change in the near future and steel prices are now projected to be at $837 a ton by the end of the year—8% lower than they were in May. This would be better news for the steel consumers if they had more demand. That is the dilemma. The price of steel is falling because there is limited demand for the commodity, and there is limited demand because there is even more limited demand for the products that companies make with that steel. As these companies see more business and more opportunity, the price of steel will then start to rise.

Source: NACM Economist Chris Kuehl

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