Green shoots or fool’s gold? The signs are there if you look for them.
Last week light long product prices continued to rise in some regions as mills took advantage of a slight resurgence in demand to push through increases and pass on rises in scrap and billet costs.
Even stainless steelmakers seemed to benefit, pushing through an 11% increase on base prices in Europe.
Seasonal upturn is a factor in rising prices, and of course it would be foolish to suggest that the crisis may have come to an end – doubtless we will see more falls before sustained growth returns.
But the performance of some key indicators was encouraging.
UK-based trading house Stemcor, the world’s largest steel trader, reported the second-most successful year in its history in 2008, saying that it – unlike most steelmakers – had largely avoided significant losses last year when the markets turned.
At the same time European distribution firm Klöckner & Co posted improved full-year figures for 2008, although it did warn that earnings would drop significantly in 2009.
And London money-broker Moneycorp predicted that the global economy is set for a period of stability because toxic debts have been worked through the system, the evidence for which is greater M&A activity.
Equity markets also reacted positively to news that G20 nations had agreed to provide an additional $500 billion to the International Monetary Fund (IMF), as part of a $850 billion plan to provide capital to developing countries.
All in all, the investments are part of what the G20 characterised as “an additional $1.1 trillion programme of support to restore credit, growth and jobs in the world economy”.
“Together with the measures we have each taken nationally, this constitutes a global plan for recovery on an unprecedented scale,” the G20 said in a combined statement.
A great deal of pressure was mounted on the G20 talks, not least from the small crowd of protestors who populated the streets of London’s financial centre.
At first glance, Iron and Steel Statistics Bureau (ISSB) statistics that reveal China recorded its first trade deficit in steel mill products since November 2009 are also encouraging.
But, as easy as it might be, one should not get carried away. Negative indicators are still painfully noticeable.
Considering that inventories in China remain at historically high levels, these statistics could indicate that the world’s largest steel-producing nation no longer has a low enough cost base to be competitive on the international market.
A lot rides on negotiations for annual benchmark prices for steelmaking raw materials.
Spot market iron ore bookings cfr China posted small declines this week to $63-64 per tonne for fines, but steel mills will need to get annual contract prices down to prices in the mid- to high-$20 per tonne mark to enable them to be truly competitive.
Changes to export tax rebates will only make Chinese offers more competitive, something many other nations are more than aware of, with some continuing to embrace protectionism.
The UAE was the latest to join this club last week, reinstating a 5% import duty on rebar as exporters to the traditionally vibrant construction centre squabbled and undercut each others’ prices.
Avoiding protectionism will be as much of a challenge as providing liquidity to the markets, as the G20 also noted at their London meeting.
“World trade growth has underpinned rising prosperity for half a century. But it is now falling for the first time in 25 years,” it said. “Falling demand is exacerbated by growing protectionist pressures and a withdrawal of trade credit.”
“Reinvigorating world trade and investment is essential for restoring global growth. We will not repeat the historic mistakes of protectionism of previous eras,” it promised, pledging to “refrain from raising new barriers to investment or to trade in goods and services, imposing new export restrictions, or implementing World Trade Organisation inconsistent measures to stimulate exports.”
Promising to make at least $250 billion available over the next two years to support trade finance, the G20 should be applauded for its stance. But it will take more than a collection of politicians to make this a reality.
The world should certainly be encouraged by last week’s news. But pragmatism is still the name of the game.