Steel production to decline by 10% in 2009, say analysts

THE STEEL business faces reduced production in 2009 of at least 10 per cent, analysts say.

This would be the biggest year-on-year fall for more than 60 years. Moreover, according to the gloomiest projections, it could be at least four years before output returns to the production levels of 2007.

This would make the period of the expected downturn only the fifth occasion in the past century, leaving aside times of world war, when a slump in the steel industry has lasted four years or longer.

The sector has been among those worst hit by this year's financial storms, with share prices in many steel groups having fallen by more than two-thirds since the middle of 2008.

Hit by a sudden reduction in orders in September and October from businesses such as construction, cars and white goods, many producers, including Lakshmi Mittal's ArcelorMittal, Severstal of Russia and Corus, owned by India's Tata Steel, have sharply cut production.

Carol Cowan, a US-based analyst at Moody's credit rating agency, said: "The reduction in demand we've seen in steel goes beyond typical cyclical downturns given the level of distress in global financial markets and tight credit conditions."

Steel companies' share prices have been hit accordingly. Severstal's shares fell nearly 90 per cent between July 1st and December 22nd; ArcelorMittal's dropped more than 70 per cent; and US Steel, the US's biggest steel company, has had a 79 per cent drop in its share price over the same period.

According to World Steel Dynamics, a US steel consultancy, steel production could fall next year by 13.9 per cent compared with this year.

Michael Shillaker, an analyst at Credit Suisse, is slightly less gloomy, forecasting a year-on-year fall in 2009 of 10 per cent, with a pick-up only around the middle of the year.

The biggest fall in demand over one year for the steel industry since the end of the second World War was the 8.7 per cent drop in 1982, towards the end of a downturn in global industry. That was the third consecutive year in which steel industry output fell. There have been only three occasions since 1900 when output has declined for three years in a row. Other similarly bleak periods for the industry were 1930-32, 1944-46 and 1990-92.

In 1945, the final year of the second World War, steel output fell 27.3 per cent, the biggest year-on-year fall since the industry started collecting comprehensive data at the beginning of the 20th century. - ( Financial Timesservice)