Duferco predicts lower prices & weaker demand as a result of delayed reaction to the credit crunch 
General News - 2008 January 16  

Duferco predicts a period of lower prices & weaker demand as a result of delayed reaction to the credit crunch

The global steel industry faces the possibility of its first prolonged slowdown since 2001 in the second half of the year, according to the head of Duferco, the world's biggest steel trading company.

Bruno Bolfo, chairman and owner of Duferco, said a period of lower prices and weaker demand might be expected as a result of a "delayed reaction" to the credit crunch, the impact of which is beginning to seep into some consumer businesses.

"You have to be concerned when you see the reports about the problems in the financial services industry. It is difficult to imagine these would not have some impact on steel," he said.

But Mr Bolfo - whose company is based in Switzerland - said there were a "lot of positive indications" for the steel industry that might reduce the impact on the sector of any general slowing in the world economy.

"China and India are still very strong [in terms of their demand for steel] and so is the Middle East," said Mr Bolfo. "It's as though in the past few years we have had 600m-700m new people added to the world [considering their impact on global consumption trends]."

Also, he added, demand for steel in sectors such as transportation and energy was still very strong - even in the US where much of the credit crunch has its roots.

Adding to worries that the steel industry could be moving into a weaker period, Posco, the world's fourth-biggest steelmaker, on Thursday reported a larger-than-expected 20 per cent fall in fourth-quarter profit, largely as a result of weaker demand for stainless steel.

Net income at the Korean company dropped to Won713bn ($761m) from Won895bn for the comparable period a year earlier. However, Posco moved to ease investor concerns by saying net income for the first quarter of this year would rebound, helped by an increase in production.

In recent weeks, investors have shown a few frissons of concern about the world steel industry, which, for most of the decade, has enjoyed stellar growth, with a sequence of price rises and a strong showing on equity markets.

Since October, the global index of all quoted steel stocks has fallen 4 per cent compared with the world index of all publicly traded companies.

Separately, Duferco on Thursday announced a joint venture in Italy with Nucor, the US's second-biggest steelmaker, which marks the US company's first production foray into Europe.

Under the agreement, Nucor is likely to pay about $700m for a 50 per cent stake in Duferdofin, a steelmaker in Italy that Duferco owns and which is run separately to its global steel trading business.

Duferdofin's three plants make steel beams for use in the construction industry, with a large amount exported, particularly to fast-growing markets in eastern Europe and Turkey.

Neither Duferco nor Nucor has given any indication of how much the US company will pay for its stake, as this is subject to negotiation.

Dan Dimicco, Nucor's chairman and chief executive, said the joint venture would enable Nucor to bring into Europe "its particular operating know how" in running steel mini-mills in the US.

Mini-mills rely on scrap metal as a raw material rather than iron ore. Duferdofin - which is due to increase its output to some 1.6m tons a year by the end of 2008 - uses mini-mill technology in its Italian plants.

Source: Financial Times


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