By Peter Marsh in London and agencies
Published: April 27 2009 17:40 | Last updated: April 28 2009 01:40
World steel demand is likely to fall 14.9 per cent this year, making the decline by far the biggest in the industry since the end of the second world war, according to forecasts issued Monday by the World Steel Association.
The projection is considerably more pessimistic than the 10 per cent demand fall for 2009 that is the current central assumption byArcelorMittal, the world’s biggest steelmaker, which reports its first-quarter results on Wednesday.
According to the WSA, the main trade body for steelmakers, the US is expected to experience a particularly large fall in steel demand of more than 36 per cent this year, with the European Union experiencing a fall of nearly 30 per cent.
The association’s projections underline the difficulties piling up for the world’s biggest steelmakers, which have had steep falls in output and profits.
ArcelorMittal is expected by analysts to turn in earnings before interest, taxation, depreciation and amortisation of about $9bn this year, well down on the comparable $24.5bn for 2008.
Michael Shillaker, an analyst at Credit Suisse, said he thought the projection of a 15 per cent fall in demand “far more realistic” that the 10 per cent decline that many steel industry observers have been pencilling in.
“I expect some kind of upturn from around September onwards, but it will be very mild,” said Mr Shillaker.
According to the new WSA figures, India will be the only major country to have an increase in steel demand this year – by about 1.7 per cent. Total world production and consumption in 2009 is expected to be slightly above 1bn tonnes, down from nearly 1.2bn tonnes in 2008.
In 2010, the WSA, based in Brussels, expects steel demand to climb marginally.
Steel demand has risen at a robust rate in the past few years, led by rapacious consumption in China. This led to a big increase in steel prices, pushing up profits for the world’s leading steelmakers.
The last time the world recorded a fall in steel demand was in 1997 when consumption fell 2.7 per cent.
In 1945, steel demand plummeted 27.3 per cent. The biggest year on year fall since then was the 8.7 per cent decline recorded in 1987.
Between 1930 and 1932, steel demand for three years in succession fell more than 20 per cent – the worst period for consumption of the metal since records began in 1900.
■ US Steel Corp announced drastic measures to shore up its balance sheet on Monday, including slashing its dividend by more than 80 percent, offering new shares of common stock and delaying payments to a retiree healthcare trust.
The company’s shares slumped more than 6 percent following the announcement, in which the steelmaker said it had amended the terms of its credit facility and term loans to eliminate existing financial covenants.
U.S. Steel also posted a first-quarter loss that was much bigger than analysts expected and said it expected to record an operating loss in the second quarter.
”We continue to face an extremely difficult global economic environment,” Chief Executive John Surma said in a statement. ”Extremely short lead times coupled with the uncertainty surrounding financial markets and key steel-consuming industries such as automotive and construction make it difficult to forecast beyond a very short horizon.”
To boost liquidity, US Steel said it was cutting its quarterly dividend to 5 cents a share from 30 cents a share, a move that will save $116m a year.
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The power of forecast: 2,000 jobs are endangered.
Jobs fear at Corus over steel deal
By Peter Marsh in London
Published: April 28 2009 23:34 | Last updated: April 28 2009 23:34
Nearly 2,000 jobs in one of Britain’s biggest industrial sites on Teesside in north-east England were in jeopardy last night after it emerged that a deal to sell the steel factory to an Italian company was in danger of collapse.
The news will be a blow to Corus, the Anglo-Dutch steel company owned by Tata of India, which three months ago concluded an outline agreement to sell the Teesside plant for $480m to a consortium headed by Mantova-based Marcegaglia.
However, Steno Marcegaglia, chairman and founder of the family owned company, has decided that the deal no longer makes sense in the light of the crisis in the steel industry.
World steel output looks set to fall 15 per cent this year, the biggest annual drop since the end of the second world war.
“Steno is adamant that to conclude this contract would financially overstretch the company,” said a person knowledgeable about the discussions.
Mr Marcegaglia believes it would be better to pay a penalty fee and break the agreement rather than proceed at a time when the steel industry looks set to run into massive overcapacity for several years. The size of the fee has not been publicised but could amount to at least $2m.
Under the agreement, Marcegaglia has until the end of next month to decide whether to go ahead. As part of the deal, the company was to have taken a stake of 56 per cent in the Teesside unit – which is at Redcar – for $336m.
News of Marcegaglia’s misgivings has yet to be communicated either to Corus or Tata. Marcegaglia did not return phone calls or e-mails. Corus said that as far as it knew the Teesside deal was still going ahead.
The Indian company bought the European steelmaker two years ago at the height of the steel boom for £6.7bn ($9.8bn), in the process becoming the world’s sixth-biggest steel producer.
Tata took out £3bn of loans to pay for the Corus acquisition. Ratan Tata, its chairman, had been counting on the proceeds from the Teesside sale to pay off some of these debts.
In the past Corus has said it could shut the Teesside plan if no buyer is found.
As part of the agreement, Marcegaglia was to have management control of the site, with the other member of the consortium being Dongkuk, a South Korean company, which had been due to pay $144m for a share of 24 per cent. Corus was to have been left with a 20 per cent stake.
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