According to Fitch Ratings" 2009 global steel outlook report issued recently, Fitch expects the current sharp contraction in steel demand to continue to weigh on steel production and pricing through the first half of 2009. While in the short term the steel market will be in a downturn, the ratings outlooks on the vast majority of Fitch Ratings" steel coverage are stable.

As per the outlook, demand for steel has weakened sharply since August 2008. The global financial crisis reduced construction activity worldwide as well as consumer demand for durable goods. The resulting fall in steel demand and prices has been met with substantial production cuts around the world. Global steel production declined by 12.4% YoY in October 2008, following a 3.2% YoY drop in September 2008. The cuts that have been announced will result in sharply lower production through the first quarter of 2009.

Demand for steel should improve following the aggressive expansion of central bank liquidity provisions since early September, in combination with major fiscal injections into the US and European banking systems, as well as major stimulus packages announced for China and expected for the US. The timing and severity of the downturn caught most analysts by surprise and Fitch does not expect real demand to begin to recover before the second half of 2009. Steel and raw materials prices may begin to recover before then, signaling that stocks have been liquidated.

Spot raw materials prices have fallen sharply following destocking and declining steel production. Contract prices for iron ore and metallurgical coal are expected to be 20% to 40% lower than last year. Freight rates have fallen as well, which should result in lower costs going forward.