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Excess crude production leads to weakening steel prices - 10 June 2010

Weak steel prices, which continue to tumble in most parts of the world are fundamentally reflective of crude steel production being in excess of its current demand, and global capacity being in excess of production. This has prompted European and North American mills to idle some existing furnaces and to delay re-openings.

For Q3, the world’s largest steelmaker, ArcelorMittal, is expected to idle three blast furnaces at different times, the company recently told Steel Business Briefing, whilst in the USA, Severstal North America has temporarily halted steelmaking at one of its mills. EAF scrap recyclers too are looking to idle their furnaces in Italy and elsewhere, whilst others are curtailing rolling operations.

“Much of the price downturn is due to the end of restocking and the accompanying slow growth in demand. Sentiment too is shaky, with exchange rates uncertain,” says Roger Manser, managing editor.

In addition, the introduction of quarterly prices for iron ore and coking coal, and their increase in price in both the April and July quarters have accentuated steel price volatility. Iron ore prices in the third quarter are expected to be about 25% higher than Q2, even though the spot price has fallen since April.

“This increase is the result of the miners’ new pricing formulae for Q3, though this mechanism may change in the near future, if iron ore pricing goes monthly, for example,” says Mark Wiggett, editor of Global Market Outlook.


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