Decreased demand and higher imports will lead to lower overall spot steel prices in 2005 compared with 2004, said Standard & Poor’s in its semi-annual survey on the industrial metals industry, published today.
In addition, Standard & Poor’s believes that the worst is over for the year and steel prices should stabilise in the next three-to-four months, while aluminium prices will post a small gain over 2004. These and other findings are available in the report, Metals: Industrial Industry Survey, published twice yearly by Standard & Poor’s.
Following a booming 2004, market conditions in the US steel industry deteriorated in early 2005. Standard & Poor’s believes that declines in shipments, consumption and production were due largely to accumulation of excess inventories in late ’04 at both distributors and original equipment manufacturers (OEMs), as well as less robust economic growth and weakness in the automotive sector.
Based on its forecast of 3.5 percent GDP growth in 2005 versus 4.4 percent growth in 2004, Standard & Poor’s expects a decline of 4-to-6 percent in the volume of tons of steel shipped in 2005 from last year, breaking down as such: a 1-to-2 percent decrease in shipments to service centres versus a gain of 4.6 percent in 2004; a 7-to-8 percent decline in shipments to automakers (against a 4.9 percent gain in 2004); and an increase of 1-to-2 percent in shipments to the construction centre (following a 4.9 percent gain in 2004).
However, it appears the steel industry bottomed for the year late in the second quarter, as distributors’ inventory levels decreased from the high levels reached in late 2004. At this juncture, distributors could be approaching a point where they will have to place more orders. Combined with production cutbacks by steel producers and a rebound in demand from automakers, this will likely help prices.
“With domestic distributor inventory levels much lower and steel imports beginning to ease a bit, along with producer discipline like we’ve never seen before, and recovering demand from the Big Three automakers, spot steel prices should at least stabilise through the rest of the year,” said Leo Larkin, diversified metals & mining analyst with Standard & Poor’s Equity Research Services.
Based on Standard & Poor’s US GDP growth forecast, S&P anticipates a 2-to-4 percent increase in aggregate aluminium shipment volume in 2005. Following a 13.4 percent decline in shipments for the first quarter of ’05, Standard & Poor’s looks for a rebound in demand from aerospace and power generation markets to partially offset a forecasted drop in motor vehicle production.
Aluminium prices rose in the first half of 2005 on the heels of increased consumption in the rest of the world, despite weaker aluminium demand in the