Steel Prices Lowering As Demand Lessens

The Wall Street Journal reports that steelmakers in the U.S. are experiencing a sharp pullback from worried buyers as the doom of the credit crisis and a slowdown in automobile and construction markets continue, causing inventories to rise and prices on some key products to drop 10%. Even though the weakening demand and prices are being partially offset by falling raw- material costs, particularly of scrap, some steelmakers already are cautioning that robust earnings from earlier in the year won’t be sustained in the year’s second half.

Demand for rebar steel has fallen dramatically in the U.S. because some projects are being delayed or put on hold amid the uncertainty in financial markets, steel-makers have said. Exports for rebar steel fell in July, after six straight months of increases, indicating that demand from foreign markets likely won’t be a substitute for weak domestic growth.

And Chinese steel makers have decided to cut production as domestic demand weakens and steel prices drop. Recent reports show that China’s steel production in August fell 6.3% from the previous month to 47.8 million tons, reports China’s Caijing Magazine.

In August, China’s domestic demand for raw steel dropped 4.5% from the same period last year, compared with the 7.2% year-on-year growth in July. Analysts blame China’s slump in steel demand on various factors including the end of the Olympic Games, seasonal variations and decreased demand from construction and automobile industries.

According to reports, the declining prices of steel products are also squeezing steel makers. Industry insiders in China predicted that their domestic steel price will continue to drop as the spot price of iron ore declines. China’s total production of raw steel was 490 million tons in 2007. That figure should break 500 million tons this year. However, due to the current market situation, the industry may fail to meet the target.