Issue link: https://read.dmtmag.com/i/93576
A Steely Outlook PRESIDENT'S POST Banff, Canada. My topic for this article is the Outlook for Iron I Ore and Steel, an important issue to most IDA mem- bers, in particular those who are manufacturers and distributors of undercarriage and ground engaging tools. The recession in Europe, sluggish economic activity in the United States, and deceleration over China's growth have adversely impacted the funda- mentals of the steel market, and consequently iron ore and coal markets. China, which is the world's largest steel producer and the largest consumer of steel, iron ore and coal, plays a crucial role in deter- mining the outlook for these three major industries. Steel prices have been experiencing a downward slide since the fourth quarter of last year. At the same time, steel inventory has continued to increase. The significant decline in global steel prices is not only due to global macroeconomic slowdown, but also can be attributed to Chinese steelmakers' focus on high production, despite weakening fundamen- tals, in order to keep their existing market share. The prices of iron ore and metallurgical coal, the two most important steelmaking raw materials, have also declined as a result of a global reduction in steel demand. Major Chinese steelmakers, like Baoshan Iron & Steel Co., have cut prices as a result of lower demand for construction equipment, automotives, and appli- ances, along with a curb in construction activity. While mills were previously raising production to maintain their market positions, companies have now started to curb - and in some cases, halt - their production in order to cope with lower demand accompanied with the price drop. According to the China Iron and Steel Association, steelmakers' prof- itability has plummeted by 90% during 2012. China's steel output is expected to fall for the first time in the last 30 years. This projection marks a three- decade turning point in China's heavy industry. t was great seeing most of you last month during the IDA convention in Miami. We had a great turnout and hope to see everyone next year in Roger Terán IDA President 2012 According to a Bloomberg article, published in October, "Iron Ore, the commodity most leveraged to China's growth and Australia's biggest export boom, is heading for the longest bear market in 20 years." The supply of iron ore to China has helped secure two decades of recession-free years for Australia, which is expected to change in the near future. Iron ore supply is gradually moving into surplus. As a result, producers of iron ore have lost about a third of their market value from this year's high in February. A lot of supply is coming into the market in the next few years, which will lead to oversupply and lower prices in the medium and lon- ger terms. This is the result of capacity expansions in Brazil and Australia, the two biggest exporters to China. Prices of finished products, such as undercar- riage and ground engaging tools, have been trend- ing lower throughout the current year, as excess capacity, combined with lower demand and lower raw material cost is putting tremendous pressure on prices for both manufacturers and distributors. The winners will be those members who respond and adapt faster to fundamental market changes, and those who are better prepared to navigate with headwind. Roger Terán IDA President 6 IDA UNIVERSAL November-December 2012