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Low Demand and Plentiful Supply Lead to reductions in Steel Prices

North American and European steelmakers are struggling to halt the negative trend in flat product steel prices, which has developed in recent months. Low steel demand, plentiful supply and a sharp fall in raw material expenditure, notably scrap, have prompted deflation in regional steel prices.

World steel demand was negatively impacted by a decrease in construction activity, as well as a notable decline in car production. The vehicle making industry was hit by a reduction in purchasing activity and the confusion surrounding the switch to electric cars. Growth in the global construction sector is expected to slow, this year. On the supply side, domestic capacity utilisation, in the US, remains at around the 80 percent level, in the year to date. Imported volumes continue to be a negative influence on steel prices in the European market, despite EC safeguarding measures.

The consensus view of market participants, in October, is that end-users are benefiting from oversupply in the steel supply chain, to secure significant discounts. MEPS predicts that global prices are likely to soften further, in the final quarter of the year. Reduced activity, in major downstream markets, is projected to continue. Subsequently, steelmakers, worldwide, will be looking to minimise the extent of further price deterioration, in the coming months.

A price recovery is forecast in the early months of next year. Inventory replenishment and a revival in scrap costs should exert upward pressure on steel prices, at that time. Nonetheless, any prolonged recovery in global steel prices is unlikely – with no long-term demand improvement envisaged.