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Steel traders braced for difficult 2012 - 1 December 2011

This year has been a tough one for physical steel traders, as evidenced by reports of restructuring at Cargill Ferrous International and Swiss-based Carbofer. Other large traders are also rumoured to have had a difficult 2011, primarily down to the weakening market in the second half of the year, Steel Business Briefing understands.

The recent news of trading houses rationalising operations suggests they are not optimistic about the market outlook over the next few years. Previous hopes of a rebound in demand from key consuming sectors such as automotive and construction in 2012 are likely to be disappointed, particularly within developed markets, SBB notes.

With forecasts of indifferent demand growth and little prospect of a more helpful euro/dollar exchange rate over the near term, exporters to Europe will face unsupportive conditions, one market observer tells SBB.

Other factors have contributed to the current problems. Since the financial crisis of 2008-09, participants in the steel supply chain have become much more disciplined in their stock management and purchasing patterns.

End-users and stockists/service centres do not hold as much stock, buying more or less what they need rather than committing to lots of speculative tonnes. This behaviour has become even more apparent at times of weak demand and falling prices.

This means traders either stick to back-to-back business with smaller margins or expose themselves to more risk in hope of higher profits.

As a result, the amount of material being moved by traders has dwindled. “Gone are the days when we were moving 10,000 tonnes,” one UK-based trader says. Instead they put together small tonnages, often parcelled on to one vessel.

 

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