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Is the Storm Over? – Steel Update. Clark Hyland SCNZ Manager BE(Civil) BCom CPEng November 2008. Overview. Steel prices have peaked and supply has eased Global credit ‘crunch’ having a big impact US$ international steel benchmark prices have declined substantially

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Is the Storm Over? – Steel Update


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is the storm over steel update

Is the Storm Over? – Steel Update

Clark Hyland

SCNZ Manager

BE(Civil) BCom CPEng

November 2008

overview
Overview
  • Steel prices have peaked and supply has eased
  • Global credit ‘crunch’ having a big impact
  • US$ international steel benchmark prices have declined substantially
  • Declines in NZ$ offsetting decline here at moment
  • Supply pipeline has a 3 month delay
  • Prices in NZ may soften from Q1 09 dependent on NZ$
what is happening in asia
What is happening in Asia?
  • Sudden drop in world demand for steel
  • Prices peaked in August
  • Prices have dropped since
  • Production being cut
  • Signs of bottoming out
what is happening in new zealand
What is happening in New Zealand?
  • International benchmarks for Oct 08 equating to prices for Jan 09 NZ delivery
  • Sustained NZ$ price levels due to recent declines in NZ$ to US$0.57
  • Benchmark prices reflect 3 months of stockholder inventory pipeline
  • US$ international steel benchmark prices have declined substantially
what is the impact of the credit crisis
What is the impact of the credit crisis?
  • In recent weeks NZ$ has declined substantially
  • The rapid change in foreign exchange and costs of credit have increased the cost of hedging and uncertainty in NZ$ terms
  • Limitations on the ability to secure letters of credit.
    • Decline in the US$ purchasing power of credit lines (if established in NZ$)
    • Inability to open expanded credit lines or significant premiums in doing so.
    • Likely to result in reduced credit terms being offered on imports
  • Changing perceptions of risks in dealing with the Australian/New Zealand market
    • Some insisting on partial (20 to 50%) pre-payment in order to secure order volumes.
    • Expect overseas manufactures to move from open account relationships, where they exist, to letters of credit (difficult to secure)
what will occur medium term for steel price
What will occur medium term for steel price?
  • In 2009 world steel consumption expected to increase 1.5 – 2.5% or 20 - 40 mt
    • compared to increases of 50 – 100 mt each year since 2001
  • Emerging markets absorb nearly 70% of world’s output, 36% of which is in China
  • China revised GDP still expected to grow by 6 - 8% for 2009
  • Western markets for steel will shrink by 6 -8%
  • Vale, world’s largest iron ore producer cutting production by 20%,
    • however continue to implement capital expenditure to lift iron ore production by over 50% in the next 5 – 7 years
what will occur long term in steel price
What will occur long term in steel price?
  • High GDP growth in Brazil, Russia, India,and China with a large population base
  • Rapid urbanization of China driving a high steel intensity/$GDP
  • Significant increase in steel consumption per capita in China with increasing GDP
    • These are long-term shifts over 20+ year timeframes
    • China is 8 years in and India has not started
steel price prediction

Recovery?

Steel Price Prediction

Yes it is occurring

Long term trend

Will there be a change in long term trend??

summary
Summary
  • The price storm is over
  • Steel supply pricing has stopped climbing in NZ$
  • US$ international steel benchmark prices have declined substantially in recent months
  • Recent declines in NZ$ offsetting decline of international steel prices
  • Softening of prices in 1st or 2nd quarter of 2009 will depend on movements in NZ$.
  • Medium & long term demand internationally for steel remain strong
references
References
  • Fithall N., Building Sustainability in Changing Times, Onesteel, Presentation to NZ Metals Industry Conference October 2008
  • China Steel Briefing, CBI China, October 17, 2008
  • SBs Daily Briefing Global Edition, Steel Business Briefing Ltd, 3rd November 2008
  • SBBAnalytics China, Steel Business Briefing Ltd, 3rd November 2008
  • SBB’s Weekly World Steel Review, Steel Business Briefing Ltd, 29th October 2008