***IREPAS DIARY: Cut, cut, cut

After one false start, the International Rebar Exporters and Producers Assn meeting kicked off in Budapest this week. It wasn’t particularly pretty.

Over the years Irepas has come to be the meeting point for the world trade in light long products, but with a particular emphasis on CIS and Turkish producers and traders from the Middle East, Europe and the US.

Demand for these products is dismal, and the outlook for prices is pathetic. It’s soon set to get worse.

This year Ramadan will coincide with a seasonal lull in construction demand in Europe. Given that the building sector in Europe is already in a parlous state, this doesn’t bode well for buying this summer.

Mills have only one option, attendees to the various committee meetings in Budapest said — they have to cut production.

Some have already done so. Southern Europe has been the worst affected, and several leading mills in Italy and Spain have been forced to reduce output by as much as 60%.

In 2009 Spain produced 6 million tpy of rebar. Following a devastating collapse in demand, the country’s mills are only expected to produce 1.5 million tpy this year.

The financial difficulties emanating from Greece’s budgetary mess have done little to help.

“When the banks had problems in 2008 they were bailed out by the government,” one trader remarked. “Now that governments in Europe are bankrupt, who’s going to bail them out?”

Certainly not the steel industry. In their latest deals, CIS meltshops have agreed to discount their export prices by as much as $100 per tonne on sales to Middle Eastern customers as Italian meltshops cut into their market share in North Africa.

These markets won’t be around forever either. Bahrain’s SULB is just one company investing in steelmaking capacity in the Middle East, with a 300,000 tpy billet caster set to come onstream next year.

Traders are particularly worried. As rebar prices ever lower, their customers who are holding inventory become increasingly less credit-worthy.

They become more difficult to sell to, so their business becomes much riskier and… well, you can see the progression, we’ve been here before.

As the Irepas meeting wrapped up, there was little sense of how far prices could fall. But there was one consensus — more production cuts are necessary, and fast.

The Irepas meeting is held in conjunction with Steel Orbis