|
What effect is the global financial situation having on us? What fascinating times we live in! As I write this we are going through a global chapter that will surely be studied in business case studies for the next 50 years. When we look back at this period we will see far more clearly what really caused this present chaos, or at least we will have a clearer perception of this “reality”. So too, will we see the opportunities that we ceased upon or the opportunities that we failed to see at all. After all, as the well quoted cliché goes: one man’s loss is another man’s gain. After reading numerous reports the following is an extremely brief synopsis of the steel market as of October 2008. I think I would prefer to refer to it as a dummies guide. The jury is still out as to the causes of the financial meltdown in the global markets, but by all indications it is a result of excessive consumption (building/housing developments, general consumer spending etc), largely as a result of easy access to credit. This excessive spending & borrowing has led to artificially high real estate values & an over-demand on basic commodities, such as steel to meet the demand of this hyper-inflated world economy. This is a classic example of an over-heated economy. So now we pay the price, led firstly by the world’s largest economy, the USA. So as confidence is shattered overnight, the world is faced with huge stock piles of commodity products (again, such as steel) that have been produced, but now find themselves without a lacklustre buyer. There has been a massive engine churning out of commodities to feed this hungry world economy that now has to be abruptly halted, as an example Australia had its highest iron ore exports in September, 38% up year on year. So now we see prices plunge, production is drastically reduced, companies going bust & workers laid off. Clearly a situation where more than a band aid is required. These are long term fundamental problems that will take years, rather than months to correct. Some stats: · Global steel production is down 3.2% in September (the first decline in 87 months). Of this decline, China’s production is down 9%. We would suspect that these reductions will be even greater in Q4. · Global scrap steel prices are now running at about $250/ton, down from their peak of $450-$550/ton around May this year. · In the US, hot rolled coil is down 30% in price ($760/ton) again from their peaks in May/June. For many steel merchants across the globe, these times are incredibly difficult, as not only is demand for steel lower, but many have inventory of expensively bought steel. With the abruptness of these global changes there is definitely going to be many causalities. In New Zealand, our rapidly depreciated currency has acted as a buffer, protecting many of our merchants from this problem. But we will need a little more time to pass before we can see how our net pricing pans out. At ASPL, we will be doing our best to maintain our current price levels. With lower demand, which is expected to improve post election we believe it is crucial to remain competitive. However we do need to see some stability in our currency & to also see the effects of lower steel prices trickle through to us all. One hopes that these lower commodity prices will at least offset our currency devaluation. Regards Sean Foster |
