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Mining stocks
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Of Note:

Downturn gives steel users a little relief.
Behind the shift is a surge of foreign steel into the U.S.
Also helping is the strengthening U.S. dollar, softening demand for steel elsewhere and falling freight rates.
Steelmakers have sought to cut production to bolster prices.


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Steel Buyers Gain Some Relief
October 6, 2008
The Wall Street Journal
By ROBERT GUY MATTHEWS

Downturn Means Lower Prices, Enabling Users To Better Weather Weaker Times

There is an upside to the weakening U.S. and global economies, at least if you're an American steel consumer. The commodity is more available, and prices have fallen 20% in the past three weeks.

Behind the shift is a surge of foreign steel into the U.S., with the latest figures from August showing that steel imports from Russia jumped 86%, from India 37% and from China 33%. Analysts believe that the influx continued through September.

The upshot is that steel buyers who have seen prices rise nonstop for nearly two years are finally getting some relief. The lower prices, in turn, will lower costs for steel users and help them better weather the current economic downturn.

Take Wayne Boeckman and his steel-stamping business, QuickWay Stampings Inc., based in Euless, Texas. QuickWay hasn't yet suffered from the weakness of the U.S. economy, in large part because it makes steel assemblies for the energy, electronics and after-market automotive business. As more consumers hold off on buying new cars, they're making more repairs and improving the performance of existing cars.

"I hate to say it, because I know a lot of people are struggling, but we expect to see sales strong through the rest of the year," says Mr. Boeckman.

Imports had been down earlier this year, reflecting a weak dollar, strong foreign consumption and high freight-shipping rates. But that tide has begun to shift in recent weeks, with the strengthening U.S. dollar, softening demand for steel elsewhere and falling freight rates. The Baltic Dry Index, a key indicator of freight prices, has fallen about 65% in the last four months.

In addition, steel prices in the rest of the world are falling faster than they are in the U.S., prompting foreign producers to direct more of their output to the U.S. market. In India, for example, prices for some grades of steel have fallen 40% since June. In the Middle East, prices have fallen by as much as half.

Steelmakers have sought to cut production to bolster prices. Last month, ArcelorMittal, the world's largest steelmaker by production, said it would cut output by 15% in some markets to keep supply tighter. Other steelmakers are pulling forward scheduled maintenance at some mills originally scheduled for later this year.

"We'd expect to see further production cuts in coming months," says Michelle Applebaum, steel analyst for MAR Inc. "Unlike prior cycles, production cuts these days come faster and more furious than in the past."

Up to now, Europe has taken up most of the foreign steel imports, because steelmakers could command higher prices there than in the U.S. But slowing demand in Europe has made steel prices in the U.S. and Europe nearly identical.

"You are starting to see negative GDP growth in Europe, and that is having a ripple effect," says Dave Phelps, president of the American Institute for International Steel, a group that represents both U.S. and non-U.S. companies that import and export steel products. "The U.S. market looks very attractive, and you will continue to see strong imports from China, but they are way down historically."

That puts pressure on U.S. steelmakers but relieves steel consumers. Inventories at service centers -- which buy steel from mills and then resell it to smaller customers -- are high. Those service centers are expected to curb purchases of steel until they work through their inventories. Some are reluctant to sell their steel, which they bought at high prices months ago, in the hope that prices will rebound.

Ralph Hardt, president of Feintool North America, a metals fabricator for the automotive industry, says he has yet to see imports coming in at strong enough numbers to make a difference in what he's paying, but he is hopeful. "I think it will happen," he says. "It will be a good thing. You want a strong domestic steel industry, too. But pricing really got out of control this summer."

Domestic steel mills already are retracting some of their planned price increases. Order books for some steel mills are softer than expected in November, according to some analysts. And capacity utilization at domestic mills is down. For the week ending Sept. 27, the rate was 86.5%, one of the lowest rates of the year.

http://www.steel.org/AM/Template.cfm?Section=Industry_News&CONTENTID=25705&TEMPLATE=/CM/ContentDisplay.cfm
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