World steel output may drop for the first time since `98
Just so you know, this is our last Commodities Update for the year; I’ll be back on January 9th.
So, let’s start by looking at the ferrous market and asking: Will steel destocking end in the first quarter of ’09? Dahlman Rose & Co. thinks that the global steel industry may, in fact, be on the right track, enough so to see improved production volumes compared with the final months of this year. The firm placed global output at around 70% capacity vs. a 50% utilization rate here in the U.S.
As for an outlook for the year, global steel production, they say, could be down by 2.6% at 1.31 billion metric tons, the first decrease in world steel production since 1998. (That 1.31 billion figure is close to the eleven-month annualized figure that the World Steel Association is reporting, or 1.34 billion. Their 11-month total was figured at 1,224,600,000 metric tons, up 0.9% over comparable 2007 production.)
And that brings us to China, where November’s crude steel output fell for the fifth month in a row to hit a low of 35.19 million metric tons, down by 2% from October and the lowest monthly total since April 2006–over the January-November period, China’s output reached 463 million metric tons, up 2.6% over last year. Assuming even lower production for December, the guess in some circles is that China’s total steel output this year may only reach last year’s level of 491 million metric tons.
Getting back to destocking: Domestic inventories, as reported by the Metals Service Center Institute, continue to be “purged,” noted Michelle Applebaum Research. November carbon steel stocks dropped 8.8% from October (the lowest since 1996) while shipments fell further – down 9.8% from October.
And finally, the latest American Iron and Steel Institute figures placed domestic shipments for October at 6.48 million net tons, down from September’s 7.92 million tons. And while monthly shipments have declined for three months in a row, the 10-month total was 87.6 million tons, only down 1.6% compared with the first 10 months of 2007–‘cause shipments over the January July period averaged more than 9 million tons/month.
So, are folks saying that a bottom has been reached for finished steel prices in general, and hot-rolled sheet in coil (HRC) in particular? Both GFMS and Goldman Sachs seem to think so, with December Midwest f.o.b. prices figured at around the $525-$550/net mark, but both recognizing discounted prices below those reference prices. This week’s Steel Business Briefing’s Midwest HRC price was placed at $552…Platts, meanwhile, is showing a range of $540- $560. (Editor’s note: Purchasingdata’s price for HRC this month is around $565.)
But as we’ve mentioned before, Goldman Sachs is also looking for prices to weaken this summer due to relatively soft demand, restocking, and mill production increases spurred on by lower costs (i.e., iron ore.) For ferrous scrap price indicators, Scrap Price Bulletin is currently showing Chicago bushelings delivered at $249.50/gross ton; shredded at $238.50, and their No.1 HMS (heavy melt scrap) composite at $185.17. Platts’ Midwest reference price for shreds is $240 with prompt material said to firming, regaining its premium to shredded material.
Nonferrous forecasts drop again
Looking at nonferrous, Goldman Sachs recently cut its 2009 forecasts for base metals based on what they see as deterioration in global industrial output and the worsening demand outlook. Their LME ‘09 forecast for aluminum was cut to $1,300/metric ton (59¢/lb); copper to $2,700 ($1.22); nickel to $8,000 ($3.63) and zinc to $1,080 (49¢). These latest price forecast are the most pessimistic forecasts we’ve seen so far.
Barclays Capital’s latest comprehensive metals outlook offered the following forecasts for 2009 London Metals Exchange (LME) cash prices of aluminum at 92¢/lb; copper, $2; lead, 60¢; zinc 60¢; nickel, $4.92; tin, $6.38–and then gold, $820/troy ounce; platinum, $1,020; crude oil at $76/barrel.
We’re noticing that within the past few weeks aluminum is showing the biggest downward revisions among nonferrous metals analysts. The fact that LME aluminum is currently trading at 5-year lows, and that inventories are at a 14-year high, kind of makes the 2009 outlook very unsettled with an increasingly conservative bias. And, as if to confirm, this week’s new aluminum orders from the Aluminum Association revealed that North American mill product orders fell 24% year-over-year in November; year-to-date,
total orders (minus can stock) are lower by 4.4%.
The Institute of Scrap Recycling Industries’ own Market Forecast story (to be published in the next Scrap magazine) looks a bit more optimistic in contrast to what we’re now seeing regarding aluminum price prospects for next year.
Moving on to the latest in battery shipments, through October, shows that the North American replacement market is up some 1.5% year-on-year at 81.9 million units shipped, while original equipment batteries are off almost 12% at 15.1 million units shipped. This is not a surprise: Battery manufacturers can look forward to a cold winter to knock out all those units weakened by this summer’s heat.
Latest ILZSG (International Lead & Zinc Study Group) data through October has the global lead market in surplus by some 21,000 metric tons. Last year at this time, the market was short by 69,000 metric tons. The data also showed a sharp drop in both new mine production and demand between June and October as prices trended lower.
This Week’s Thought: A man with a watch knows what time it is. A man with two watches is never sure.
