One lesson the steel industry learned after the 1980’s and 90’s was this: it’s better to shudder plants than drop your price. And so we are witnessing a very responsive steel (and aluminum) industry to the metals price crash (if ever there was one, this is it). ArcelorMittal Europe announced it would cut production by up to 15% (instead of competing on price). But according to Reuters, ThyssenKrup has made no such announcement, despite previous private comments to the contrary. European long steel products are now selling on a Black Sea FOB basis for $700/ton a $550/ton drop since the end of June.
Corus, the second largest steelmaker in Europe also said it would cut production to better match demand as did Finnish steelmaker Outokumpu, despite announcing only in June that they would be doubling ferrochrome production as we previously reported. And Russia’s largest producer, Severstal plans on cutting up to 25% of its Russian production and 30% of its production in Italy and the US acording to this article.
It is interesting to note the speed in which the industry has responded to reduced demand and the global economic crisis. It also means that once these production cuts kick through the system, steel prices may well increase from their current levels. When will that occur? We believe it will take six months to run through the system. That means steel sourcing professionals may have the next 6 months to enjoy lower prices. But your suppliers are working hard to shore up the price. Stay tuned for additional price updates.