Heat Treat Industry News

April 30, 2009

Steel inventories too high; timing of recovery unclear--analysts

Analysts agreed world steel inventories are too high, but differed on the
timing of any recovery as they addressed a packed house Tuesday at the
Institute of Scrap Recycling Industries annual convention in Las Vegas.

"There is clear evidence of way too much inventory," said Charles
Bradford of New York-based Bradford Research. "There is too much metal in
inventory -- not just steel, but things made of steel," he emphasized.
Bradford pointed to the auto industry as an example. He said Ford had recently
reduced its inventory of cars from about 120 days to near 80 days while
General Motors' inventory still hovered in the 120-day range.

In Europe, there are high inventories throughout the supply chain,
according to Gavin Montgomery, steel raw materials consultant at CRU in
London. "Shipments are falling faster than stock levels -- despite production
cuts, supply and demand are not in alignment. The stock-to-shipment ratio is
still rising," he said.

Timken, for example, is currently carrying between two and
two-and-one-half times its normal inventory, said Randy Ehret, general
manager, strategic sourcing for the Ohio-based steelmaker.

The two analysts also expressed similar expectations for current iron ore
benchmark pricing negotiations. Though still ongoing, negotiations may
conclude down 39%-44% from last year's levels, according to Montgomery.
Bradford foresees an iron ore benchmark price drop of approximately 40%,
he said.

Bradford and Montgomery diverged as to the pace of recovery, with Bradford
playing the optimist. "The consensus seems to be that by the fourth quarter,
the US economy will be in positive territory," he asserted. He also pointed
to encouraging signs from China, where he said the latest Marcheconomic
figures showed an upturn.

Montgomery was far more pessimistic. He maintained that 2009 will clearly
be the tough year for steel prices and demand. The market, however, will not
return to 2007 levels until 2012, Montgomery said.

--Matthew Lerner, matthew_lerner@platts.com

SOURCE: Las Vegas (Platts)--29Apr2009

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