Steel is on edge and the global industry is cutting back hard, hanging on for either a budget blast from China, new credit for vast Middle Eastern building schemes or resurrection of the US auto industry.
Demand has dwindled and steelmakers, notably the giant of them all, ArcelorMittal, are damping down surplus furnace capacity while waiting for credit to flow, construction cranes to turn and factories to roll.
A decision by ArcelorMittal last week to pursue temporary production cutbacks — slashing European output by more than half from the end of this month, according to a union source — dramatizes the extraordinary ride and role of steel in the last few years.
In just months the global industry has gone from a boom driven largely by China, emerging markets and a property extravaganza in the Middle East to a narrow line between excess capacity and the costs of waiting for recovery.
“Over the past six months, demand for steel has dropped dramatically and, as a result, producers have been cutting production,” analysts at Barclays Capital said in a study last week.
In another report, Morgan Stanley predicted “the current demand shock to lead to excess steel capacity.”
Consequently, the bank said, steel plants should operate at rates below 75 percent of capacity until 2012.
“The steel market is not very different from base metals as a whole, but steel has reacted more rapidly and dramatically since September,” said commodities analyst Perrine Faye of London-based FastMarkets.
She said the future of the steel industry depended on three factors: the impact of Chinese economic stimulus efforts, a pick-up in the Middle East construction sector and a revival of the once mighty US auto industry.
“Chinese imports and exports are at a standstill. Everyone is waiting for the Chinese stimulus package to see if it will revive demand,” Faye said.
The Chinese government last month announced a 4 trillion yuan (US$580 billion) package of measures that it said could contribute 1.5 percent to 1.9 percent to the country's economic growth.
Industry experts have meanwhile spoken optimistically of China’s prospects.
Rio Tinto chief executive Thomas Albanese said earlier this year that the company foresaw “a short, sharp slowdown in China, with demand rebounding over the course of 2009, as the fundamentals of Chinese economic growth remain sound.”
Analysts have said steel inventories are falling in China in anticipation of projects expected to emerge from the country’s huge stimulus package.
“It is encouraging that the inventory of steel products, especially long products, which are mostly used in construction projects, have started to fall (since the end of March), likely suggesting that end-demand is gathering momentum,” Frank Gong (龔方雄), a Hong Kong-based economist for JPMorgan, wrote in a research note.
On-the-ground evidence suggested that the Chinese industry had been re-stocking in the first two months of the year, followed by a pause last month before major infrastructure projects were expected to start in the second quarter, Gong wrote.
In the Middle East, according to Faye, the big problem is a shortage of credit, notably for real estate developers and builders.
Construction planners had “counted on a higher price for oil and on credit to finance their huge projects.”
In addition, demand for such facilities, especially in the Gulf, has died.
“They were hoping that Americans and Europeans would buy apartments. But property prices have collapsed in the Middle East as well,” Faye said.
In the United Arab Emirates more than half of building projects, worth US$582 billion or 45 percent of the total value of the construction sector, have been put on hold, a study by Dubai-based market research group Proleads found in February.
In Dubai, one of the states of the UAE, prices in the real estate sector have slumped by an average 25 percent from their peak in September after rallying 79 percent in the 18 months to July last year, according to Morgan Stanley.
Faye said the fate of the steel sector was also tied to that of the struggling US auto industry, once a thriving steel market but one in which two of its giant players, General Motors and Chrysler, are staring at bankruptcy.
The two companies are currently limping along thanks to billions of dollars in government aid.
“We are waiting to see if the auto sector in the US will get out of the crisis intact,” she said.
TECH RACE: The Chinese firm showed off its new Mate XT hours after the latest iPhone launch, but its price tag and limited supply could be drawbacks China’s Huawei Technologies Co (華為) yesterday unveiled the world’s first tri-foldable phone, as it seeks to expand its lead in the world’s biggest smartphone market and steal the spotlight from Apple Inc hours after it debuted a new iPhone. The Chinese tech giant showed off its new Mate XT, which users can fold three ways like an accordion screen door, during a launch ceremony in Shenzhen. The Mate XT comes in red and black and has a 10.2-inch display screen. At 3.6mm thick, it is the world’s slimmest foldable smartphone, Huawei said. The company’s Web site showed that it has garnered more than
CROSS-STRAIT TENSIONS: The US company could switch orders from TSMC to alternative suppliers, but that would lower chip quality, CEO Jensen Huang said Nvidia Corp CEO Jensen Huang (黃仁勳), whose products have become the hottest commodity in the technology world, on Wednesday said that the scramble for a limited amount of supply has frustrated some customers and raised tensions. “The demand on it is so great, and everyone wants to be first and everyone wants to be most,” he told the audience at a Goldman Sachs Group Inc technology conference in San Francisco. “We probably have more emotional customers today. Deservedly so. It’s tense. We’re trying to do the best we can.” Huang’s company is experiencing strong demand for its latest generation of chips, called
ISSUES: Gogoro has been struggling with ballooning losses and was recently embroiled in alleged subsidy fraud, using Chinese-made components instead of locally made parts Gogoro Inc (睿能創意), the nation’s biggest electric scooter maker, yesterday said that its chairman and CEO Horace Luke (陸學森) has resigned amid chronic losses and probes into the company’s alleged involvement in subsidy fraud. The board of directors nominated Reuntex Group (潤泰集團) general counsel Tamon Tseng (曾夢達) as the company’s new chairman, Gogoro said in a statement. Ruentex is Gogoro’s biggest stakeholder. Gogoro Taiwan general manager Henry Chiang (姜家煒) is to serve as acting CEO during the interim period, the statement said. Luke’s departure came as a bombshell yesterday. As a company founder, he has played a key role in pushing for the
Vanguard International Semiconductor Corp (世界先進) and Episil Technologies Inc (漢磊) yesterday announced plans to jointly build an 8-inch fab to produce silicon carbide (SiC) chips through an equity acquisition deal. SiC chips offer higher efficiency and lower energy loss than pure silicon chips, and they are able to operate at higher temperatures. They have become crucial to the development of electric vehicles, artificial intelligence data centers, green energy storage and industrial devices. Vanguard, a contract chipmaker focused on making power management chips and driver ICs for displays, is to acquire a 13 percent stake in Episil for NT$2.48 billion (US$77.1 million).