Steel shares climb as analyst sees demand rising

PITTSBURGH (AP) — Shares of U.S. steel companies rose Wednesday as an analyst said distributors of the metal were poised to benefit from an eventual uptick in demand.

Steel production and prices have plunged in recent months as the global economic downturn has battered demand from key customers in the automotive, construction and industrial equipment industries. Distributors, also known as service centers, buy about a third of the steel produced by U.S. mills. They stockpile the metal and customize it for manufacturers.

In a note to investors, Jefferies & Co. analyst Yvonne Varano wrote that steel service centers should benefit as inventories decline and the broader economy improves, triggering new orders for the metal.

Shares of steel distributors typically move six to nine months before improving macro economic data emerges, she wrote. Steel distributors include companies like Reliance Steel & Aluminum.

“We would recommend investors have exposure to the metal service center industry in anticipation of demand improvement as inventory destocking abates and the broader economy begins to recover,” Varano wrote. “We expect to see a leveling off of (steel) prices in the coming months as demand firms and service centers are not so anxious to purge higher priced inventory.”

Meanwhile, Rio Tinto Ltd., the world’s third-largest miner, said Tuesday it had agreed with Japan’s Nippon Steel Corp. — the world’s second-largest steel company — to cut its prices for iron ore, a key steel ingredient, by more than a third for this year, foreshadowing a wider industry slump in prices.

Some domestic steel producers that operate traditional blast furnaces, such as United States Steel Corp., have their own iron ore mines, while others such as AK Steel Holding Corp. rely on outside suppliers for iron ore. Nucor Corp. makes steel by melting scrap in electric furnaces.

Shares of U.S. Steel climbed $2.30, or 7.5 percent, to $33.03 in early afternoon trading. AK Steel rose $1.01, or 7.5 percent, to $14.43. Nucor shares increased $2.34, or 5.7 percent, to $43.49.


World steel output falls 24% in Apr; India bucks trend

London, May 20 (PTI) World steel production fell nearly 24 per cent in April, reflecting the recessionary pressure in the West, but India bucked the trend recording about three per cent growth in output of the key industrial intermediary.
The global crude steel output plunged to 89 million tonnes in April as countries like China, Germany, Japan and the US slipped into a negative terrain amid slackening demand, data released by the World Steel Association said today.

Indian companies, however, managed to sail through the crisis and produced 4.25 million tonnes of steel as against 4.13 in the corresponding month last year, according to data of Steel Ministry’s Joint Plant Committee.

Steel Secretary P K Rastogi attributed the increase in April produce to robust demand from consuming sectors as also clearing of inventories by steel companies.

“They (companies) have cleared their inventories and are producing more. It is a good sign for the sector,” he said.

Contrary to the growth registered by India, major steel– producing nations like China, Japan, Germany, Turkey and the US saw the output declining by up to 53 per cent.

The US saw a maximum 53.4 per cent dip in steel output at 3.9 million tonnes followed by Germany and Japan, which reported 53.1 and 43.6 per cent dip respectively.

In the first four months of 2009, global steel output fell 22.7 per cent to 354 million tonnes. Asia’s contribution to it also dipped by 9.5 per cent to 231 million tonnes. PTI


Domestic Steel Production.

Capacity expansion projects are still on track. Although some projects have been delayed, there have been no announcements of cancellation of major projects. For example, Korea’s POSCO has delayed its 12 million tonne per year steel mill but there is neither cancellation nor scaling down of its plan. JSW Steel will continue its expansion plan with a new 3 million tonne blast furnace which will make it the largest blast furnace operator in India.

Steel producers in India are, however, not immune to the global economic downturn and have instituted production cuts. According to the World Steel Association, crude steel production in India registered a slowdown in the Q4 of 2008 with a growth rate of 0.3% and dropped significantly in the first two months of 2009 to 8.67 million tonne, a decline of 8%YoY.

However, due to a rising demand in the country, steel producers are expected to return to normal operations very soon. Industry analysts pointed out that inventory levels of steel firms increased in October to November 2008 as demand has weakened.

Nonetheless, there are indicators that inventory levels have dipped recently. Thus, steel production is expected to return to normal levels in the Q1 of the fiscal year 2009.


Essar Steel’s Canadian arm faces heat over breach of contract

MUMBAI: Essar Steel’s Canadian unit is likely to be taken to court in the US for breach of contract and pressed for damages amounting to USD 75000 (about Rs.37500000/-)

The International Coal Group (ICG), a US-based coal company, plans to sue Essar Steel Algoma for allegedly not honouring a contract to accept delivery of metallurgical coal that was contracted last year, according to people close to the development.

International Coal has already filed a complaint in the US district court for the southern district of West Virginia. ICG is learnt to be seeking more than $75,000 in damages from Essar Steel Algoma. When contacted, an Essar Steel spokesperson declined to comment.

The ICG move brings to the fore problems faced by both buyers and suppliers of commodities in honouring year-old contracts due to the sharp differences in prices and change in market conditions. While prices of most commodities, including coal, saw a three-year boom, the liquidity meltdown post-September 2008 and the following recession saw prices of commodities crash to less than half their values. This led to innumerable breaches of contracts.

While suppliers have stopped forward contracts due to defaults by buyers, the reverse has also started with suppliers going back on their contracts, prompting buyers to explore legal options. In its April 15 edition, ET had reported that large Indian resource companies, such as Hindalco and Sterlite, have stopped forward contracts.

According to the complaint, Essar Steel Algoma had, last year, agreed to buy 42,000 tonne of coal at $175 per tonne on July 30 last year, and an additional 22,100 tonne at $215 per tonne on September 18. However, according to ICG, Essar Steel Algoma accepted just 29,409 tonne under the two agreements and cancelled the orders. ICG also alleged that Essar Steel Algoma changed payments terms.

Coal prices, mainly from Australia — one of the largest suppliers of coal globally — have more than halved in the past eight months. Recent reports suggest that Rio Tinto and Xstrata, last month, cut their Japanese coal supply prices by about 44%.

Thermal coal supply prices to Japan were contracted at $70-72 a tonne for the year beginning April 1, compared to $125 per tonne last year. Last year, Xstrata’s contract was at $155 per tonne. It has been reported that coke distributor Transcor Coke is also suing Essar Steel Algoma in a district court in Pennsylvania.