Jun 21, 2005

Steel: Oh, How the Mighty have Fallen

From the FT:
The world's biggest steelmaker tried to calm markets on Tuesday as falling prices and profit warnings fuelled fears that the steel cycle had taken a turn for the worse.

Lakshmi Mittal, chief executive of Mittal Steel, blamed recent industry weakness on short-term factors such as the persistence of excess stocks that built up last year when customers were worried about shortages. "It's all about sentiment and an overhang of inventory," he told industry leaders in New York. "The long-term prospects remain strong."

His comments came as figures on global production suggest excess capacity may play a bigger part dragging the industry back to its old pattern of boom and bust.

Data on Tuesday from the International Iron and Steel Institute confirmed signs of a rise in Chinese production, in spite of attempts to control new investment. China was again the largest crude-steel producer, with output of 29.7m tonnes in May, up 37.5 per cent over this time last year.

Andy Mohinta, a commodities analyst with JP Morgan in London, said: "I don't think you can ignore the supply side. There now seems a real danger that increased Chinese production will slow their demand for imports and they may even start exporting back to Europe."

Steel is definitely weighing in on the bearish side of the market/economy lately. Particularly when - like this morning - it appears to be leading a general rout in both industrial and precious metals. The precious metals did alright (probably reacting to the yen) by the close but despite some attempts the industrials couldn't manage the same trick.

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