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Engineering Industry Reports and Surveys
News Release from: MEPS (International)
Edited by the Engineeringtalk Editorial
Team on 25 January 2005
European steel market calms down for
2005
The recent rise in EU steel prices did not live up to expectations, according to MEPS European Steel Review.
After the tumultuous developments in Europe's steel markets last year, 2005 promises to be a lot less dramatic 2004 was the strongest year for three decades
Not since the early 1970s has steel been in such short supply.
The worldwide surge in steel demand caused markets in Europe to tighten greatly.
The industry witnessed all kinds of landmark events.
German steel output in 2004 reached its highest level since reunification in 1990.
Output also increased in other countries but users still could not always obtain all the steel they wanted.
Input costs - including those for energy, iron ore, coal, coke and ocean transport - rose sharply, in many cases to unprecedented heights.
This of course drove steel prices up sharply.
In Germany, the price of hot rolled coil increased from Eur 300-320 per tonne in January 2004 to Eur 530-540 per tonne one year later.
The price of plate has gone up even more rapidly.
Looking at the MEPS steel price index, the EU average transaction price of hot rolled coil stood at 118.4 at the beginning of 2004.
The acceleration in world steel markets drove that index up by 58% to reach 186.6 by June.
Further more modest increases took place over the next five months so that it stood at 200.8 this month.
In the last few weeks of the year the price hesitated and no further upward momentum was possible.
In long products, likewise, most of the increase in transaction prices took place in the first half.
The MEPS price index for structural sections rose from 118.9 in January 2004 to 180.5 in June.
Prices continued rising, though less strongly, in the second half and by December the index stood at 207.8, for a gain over 2004 as a whole of 75%.
However, the figure has fallen this month to 197.7.
The surge which propelled hot rolled coil prices up by 70% in the twelve months to January 2005 is not likely to recur for many years to come.
Nevertheless, production costs are still going up rapidly.
Steel companies will be paying much higher prices for their raw materials this year.
As these commodities are denominated in dollars, the 30% decline in the value of the US currency against the euro will considerably reduce the impact.
Raw material costs have never been the main determinant of steel prices.
It is supply and demand for steel itself which governs the price.
And here, the prospects for 2005 are rather subdued.
A reduction in industrial confidence in the EU-15, highlighted in the European Commission's latest economic survey, does not bode well for steel demand this year.
The report stated that the decline was caused by a deterioration in production expectations, including those of steel-consuming manufacturers.
The EU Commission's forecasting model is indicating GDP growth of 0.3-0.7% in the euro-zone in the first quarter.
This modest expectation is no doubt adding to the concerns of steel-using industries.
Along with a fall in export activity because of the strong currency, this means that real steel consumption in the EU-15 is unlikely to rise significantly in the early months of 2005.
It now seems probable that EU strip mill prices will peak in quarter one.
Our projection for the rest of the year shows prices beginning a gradual decline in the Spring.
By the end of the year, values are likely to have drifted down by between 5 and 10% from their first quarter zenith.
Prices for plate are significantly more robust.
The market for this product is firmer than those for strip products, and the supply is more limited.
Plate prices should therefore remain stronger for longer.
In structural sections, we see little scope for price increases in 2005.
In fact, we expect prices to show a small but steady decline through the year, dropping by up to 10% overall.
In both flat and long products, the prospect of prices weakening will encourage users to reduce their stock levels before placing new orders.
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