Johannesburg - Local infrastructure programmes would underpin South Africa's steel market although there were pricing concerns, said Dirk Kotzé, an asset manager for Coronation Fund Managers.
These comments follow figures from the World Steel Association on Monday, according to which South African crude steel production was 31.7% lower in February compared to the same month last year. February production came in at 470 000 tonnes.
"I'm not too pessimistic about volumes in the South African market," said Kotzé. "Prices are, however, a different thing and are determined in the international arena.
"Effectively, what happened is that demand fell away very badly, and the steel players in all the markets took downtime," said Kotzé. The outcome was that price declines were not aggravated by over-production.
But local steel producers are hurting.
"There is simply no demand," said Sven Lunsche, a company spokesperson for Arcelor Mittal SA. The firm is South Africa's largest producer, but is operating at two-thirds of capacity. "There is no bank credit to back buyers of steel," he said.
Arcelor Mittal SA produces about 8 million tonnes of liquid steel per year. The company has a market capitalisation of R29.41bn.
If there is some support, it's the prospect of power station construction.
"The demand we are seeing is from infrastructure projects like the Madupi power station," said Lunsche. "These projects act as a backstop for demand for our steel production in this country."
Speaking at the company's half-year results, Highveld Steel & Vanadium (Highveld) CEO Walter Ballandino said earlier in March there was "no indication of when any improvement in economic conditions will favour increased production and sales".
As a result, Highveld has resorted to production based on demand, whereby it will avoid stock-piling reserves to keep within "an economic level of output", said Ballandino.
World steel market
World crude steel production for the 66 countries reporting to the World Steel Association was 84 million tonnes in February 2009, 22% lower than February 2008.
"Crude steel production showed a continued decrease in nearly all the major steel-producing countries in February 2009 compared to the same month [in] 2008, except Iran and China," said the association in its report.
In 2008, despite the downturn and a reduction of 1.2% in world steel output, China's economic boom saw it produce more crude steel than ever before, increasing 2.6% to 502 million tonnes. This was equal to just over a third of the global market, Highveld said recently.
For February 2009, China increased its crude steel production marginally by 4.9% to 40.4 million tonnes, the association said.
Production in China had "come off in a sense that it has stopped growing, rather than declined," said Kotzé. "It appears that within China there is quite a substantial building inventory, because they haven't matched their supply with demand," he said.
Yet China's appetite for crude steel for infrastructure remained strong on the back of an announcement it would build nine refineries in three years, according to the research firm Industrial Info Resources. The refineries are planned along China's coastal areas, with each receiving imports through Shanghai.
Russian producers, meanwhile, are selling to China on a cost basis, according to Kotzé. The World Steel Association showed that Russia experienced a 32.1% decrease in production to 4.1 million tonnes in February.
"The Russians haven't shown the kind of production restraint other nations have, because they are the cost leaders globally and they can afford not to worry about that too much," said Kotzé.
"The question is, can the western world steel companies hold in the face of people like the Russians, who are undermining their prices? Their restraint scenario hasn't really helped to keep prices up," said Kotzé.
- Fin24.com