Further price erosion forecast for steel products

The firm expects hot rolled coil prices to remain under pressure for several months to come. It has found that the average basis price in the EU peaked in June. Since then a steady decline has occurred and it currently stands 9% lower than five months earlier.

The pricing pattern over the past year, say the consultants, bears a “remarkable resemblance to the period September 1997 to 1998 – incorporating the six months either side of the maximum price in the previous cycle.”

Looking ahead, it says that prices over the next few months are not likely to collapse at the same rate as in 1998. “However, we believe that further reductions are inevitable. We estimate that average negotiated basis prices could decline to a level of DM520 per tonne by the end of the first quarter of next year. A period of consolidation should then occur, before prices rise again in mid year. “

This assumption is based on a decrease in hot rolled production of, at least, 10% around the turn of the year. And, MEPS warns that If the EU mills are too timid to make such adjustments, the price decline could extend beyond the first quarter of 2001.

Looking back, Corus has announced cuts in output of all strip mill products in the UK. Usinor has also reduced hot rolled strip production at Fos-sur-mer.

In common with other commentators, MEPS expects maintenance programmes to be brought forward with extended shut down
periods over the Christmas and New Year breaks at many other steelmakers.

It adds: “The mills will hope that these modest curbs to output will send the correct signals to the market and halt the current price slide. We fear that the gentle approach may be insufficient to alter the situation. In our opinion, significant cuts in production will be necessary. They will need to be actioned soon.”

Full copies of the MEPS report from: MEPS (Europe) Limited, 263 Glossop Road, Sheffield S10 2GZ, tel: 0114 2750570, email: MEPS (Europe)