ArcelorMittal to cut SA steel prices again in November

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30 Sep 2008

South Africa's largest steel producer ArcelorMittal South Africa has notified its customers that there will be another, even larger, price cut on both long and flat steel as from November 1, having last month confirmed an average 5% cut from October 1 – the October price reduction was the first for 2008. In a note to its customers, the group said that the base price for both long and flat products would decline by an average of R1 000/t for orders confirmed for delivery from November 1. This would effectively translate into a decline of about 10% across the various grades of steel the group supplied.
Certain grades of flat steel, however, would decline by a more modest R500/t, while the price of 5-mm plate would remain unchanged.
News of the November cuts also came as initial talks resumed between the company and the Department of Trade and Industry (DTI) over a possible ‘developmental pricing model'.
Details remain sketchy, but Engineering News Online understands that high-level discussions have taken place involving CEO Nku Nyembezi-Heita and Trade and Industry DG Tshediso Matona. There was reportedly also a commitment from both sides to ongoing contact, but it was unclear when technical-level discussions would resume.
DTI’s Nimrod Zalk confirmed that the department was in the process of reassessing the benchmarking model as it was being applied by ArecelorMittal South Africa and said that further technical discussions could resume once this work had been completed.
“There is no question that this is an outstanding matter for both of us, to which we would like to bring some resolution,” Zalk told Engineering News Online.
The November price cut is the second for 2008, and observers believe it could signal a trend rather than a seasonal adjustment, given that it appeared to be based on falling demand, particularly from the automotive industry, as well as the white goods sector.
Prior to September, when prices were rolled over, there had been seven upward revisions to the price of hot-rolled coil, which had surged by over 100% year-to-August. Similarly, there had been six increases in the price of wire rod.
The downward revisions for October and November were based on material reductions in domestic selling prices in the US, Germany, China and Russia, the four markets against which ArcelorMittal South Africa benchmarked its own domestic selling prices. This basket price was then adjusted to the South African currency's performance against the US dollar.
The October decrease was viewed by some as a seasonal phenomenon, precipitated mainly by lower demand traditionally associated with the Northern Hemisphere's summer holiday period. But given the current turmoil on the financial markets, which many now speculate will lead to recessions in a number of developed economies, the outlook for steel prices is far less certain.
The larger ArcelorMittal Group, which is also the world's biggest steelmaker, expected steel prices to recover by year-end on the back of continued global steel demand growth of between 3,5% and 5%, underpinned mostly by the economies of China, India, Russia and Brazil.
Other market commentators believe the rebound might be longer in coming, however, with a Credit Suisse Group analyst having been quoted by Bloomberg recently as saying that steel prices would rebound only in 2009 as demand recovered in China and production cuts quickened. In fact, ArcelorMittal itself said it might cut production by 15% in Europe and the US to support prices as global growth slows.
In South Africa, the ongoing infrastructure boom was providing something of a cushion against falling steel demand in other sectors and consumers would, no doubt, welcome the respite provided by yet another price decline.
Sustained increases over the past eight months have been partly blamed for South Africa's high producer price inflation, while the higher prices have also put pressure on margins at factories and mines and have added to escalation pressures in the construction and building sector.

Source: Engineering News