The encouraging material results achieved by the steel mills during 2004 are still exercising their positive impact on the overall activity of this industry during the first half of 2005. Demand for the steel products has greatly covered the total production of the first quarter despite that a number of mills have increased their production in order to be able to respond to the market requirements which have demonstrated a demand growth, even though this has appeared sluggish in some regions and strong in others. Perhaps the Arab region has been among those major regions which have witnessed an increase in production of, and demand for the steel products during the first quarter of this year. The production figures of the most productive countries in the Arab region have revealed an increase in the production growth rate of long and flat products.
According to the forecasts of the International Iron and Steel Institute (IISI) the world demand for the steel products will witness a growth of 3.7% during 2005. IISI expects that the demand will exceed one billion tons for the first time, that is up by 36 million tons compared to 2004. However, even though the figures point to a growth in demand and an increase in production in a number of regions in the world, this has also been accompanied by a contradictory view expressed by some companies by making a decision to cut back their production as a result of the demand slowdown and to maintain the supply/demand balance. This has been done by Areclor, the largest steel producer in the world. It has declared that it will reduce its production of flat products by about one million tons in the first half of this year due to the low demand in the markets of the European Union, even though this reduction implicitly aims at supporting the selling prices already announced by the company which include an increase of Euro 15/ton effective early second quarter.
“Mittal Steel”, the second largest steel producer the world over, may, according to some analyses, resort to taking similar initiatives to that of Arcelor in reducing production within the perspective of the necessity of maintaining the supply / demand balance and of supporting the prices at the cost of quantity. This is what the steel companies are ambitious to achieve in 2005, especially after the increases taking place in the raw material prices, in particular the iron ore for which contracts have been concluded in 2005 with an increase of up to 71.5% over the level of last year.
The trend of the changes seen by the world steel markets, which are determined in the light of the markets movements and through the initiatives being taken by the major companies which control most of the steel production worldwide, may draw a new track for this industry during this year. This track will be based on an outlook prompting from: “Supporting price at the cost of quantity”. This may, some way or another, mean that the steel prices will continue going on in the same trend witnessed by the steel products during 2004 as well as in the first quarter of 2005, that is to say, the escalating trend of prices, which may increase the difficulties facing the steel end-users in a number of the major consuming sectors at the front of which are the construction sector, engineering industries and tubes and pipes industries.
The Arab steel industry has seen an evident growth during 2004 and early 2005. This growth is represented in increasing production, which was strongly justified in entering into contracts on the quantities produced during the first quarter and quantities of some part of this year. The slowdown which began to come into existence for some steel products in a number of markets must stimulate the necessity of making as a strict review of the situation of the markets as to take into consideration the compatibility of supply and demand in order to avoid any oversupply under the pressure of the desires of producers to increase production which may result in a decline in prices and emergence of price competition in the marktes.
The economic recovery experienced by most Arab markets as a result of the high gas and oil prices constituting an encouraging environment for the prosperity of the majority of the other sectors prevents the fast emergence of the slowdown conditions of demand in some consuming sectors. However, this slowdown will come into existence when the steel consuming sectors become unable to absorb the continued increase in the product prices which may develop into a higher increase in the future.
The rise seen in the steel prices, which were beyond many expectations, bear in itself opportunities and challenges. These opportunities must be made use of and these challenges must be so analysed that the steel industry will maintain the boom it has seen, which has been positively reflected in the improved conditions of the steel companies and has contributed to motivating the development operations of this industry by thinking of setting up many new projects.
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