Raw steel output continues to climb steadily in the US. Mill utilisation rates were up to almost 65 percent in the first week of November. However, the recent relighting of blast furnaces has not coincided with a similar upturn in consumption. Oversupply could become a problem in the first quarter 2010.
Service centres report that their sales have slowed markedly due to a lack of end-user demand, a situation they expect to continue for the remainder of this year. Consequently, their restocking phase has come to an abrupt end. As we anticipated in October, the steelmakers have started to offer discounts in order to solicit business, despite a lack of any real import competition.
Mill order intake is also softening in Canada, in line with the usual seasonal slowdown. Customers' activity levels are still quite low and many expect to see relatively weak business conditions ahead. Buyers are quite cautious regarding their expectations for the start of 2010. Our transaction numbers are below those of October. Producers report that pricing is very competitive and they are anticipating the need to offer further concessions in order to fill their December rolling schedules. There have been some increases in import permit applications believed to be due to earlier domestic supply disruptions.
Chinese market sentiment is healthy. Local values have rallied over the last four weeks, driven by speculators, rising input costs and government promises to continue to support economic expansion. Several mills have recently lifted their official ex-works prices as a sign of confidence in the changed market conditions. Nevertheless, the spectre of oversupply still dominates the steel sector because the producers have failed to curb production.
The Japanese economy remains relatively weak with few signs of any significant recovery in flat product demand, other than from auto and overseas steel sales. The mills are cautious regarding 2010. They believe that the current revival in their own country and elsewhere in Asia is largely due to governments' stimulus measures. The question is, "will the trend continue when these initiatives are no longer in force?". Inventories held by local mills and distributors, as end September, decreased by 1.5 percent compared to August. Quayside stocks of imported flat products dropped by a similar amount in the same time frame, to reach the lowest volume ever recorded, as buyers spurned foreign material.
Better demand from the vehicle and home appliance manufacturers continues to propel a small improvement in the South Korean flat products sector. Stocks, at the end of September, had reached a record low for the year. Cheap imports, particularly from China, are damaging market values in Taiwan as domestic suppliers strive to maintain market share.
There are few positive signals in Poland. The supply constraints reported in October have eased. Although prices are unchanged at present, we can detect downward pressure due to a deficit of any significant activity. As expected, the enhanced figures realised in the Czech/Slovak market last month were not sustainable. Final consumption remains low. Service centres are selling off stock very cheaply, thus incurring poor profit margins. Buyers report competitive offers from Russian mills.
The West European producers are currently facing low order intake as the flurry of activity in early September has tailed off now that distributors have restocked to appropriate levels. In many countries, prices have been lowered a little to encourage purchasing. Negotiations will start soon for first quarter 2010 business but no official announcements have been made yet, regarding the mills' proposals. The threat of excess supply is still causing unease as the steelmakers expand production while demand from the key consuming sectors stays weak. As far as imports are concerned, more expensive Chinese offers are dampening interest from potential customers.