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Local steel demand may recover early next year

Kuala Lumpur: The demand for steel is expected to pick up gradually early next year, despite expectations of local mills facing possible losses in the fourth quarter, said OSK Research Tuesday.

OSK Research, in its research report, said the average selling price (ASP) would also recover gradually in line with the rising demand for steel.

The ASP has contracted by more than 50 per cent, but the scrap price has dived even faster than that for steel, plunging by 70 per cent from its peak in July this year, OSK said.

"We are projecting a reasonably good reporting season this month but expect some inventory write-downs following the sharp plunge in the ASP.

In a worst-case scenario, the potential write-down may reduce more than 20 per cent of the total inventory value.

"But in a base case, we are looking at a drop of 10 per cent," it said.

It said higher iron ore and coking coal contracts that should stay until March next year, had given rise to a unique situation whereby blast furnace production costs are higher than that for electric arch furnace.

"This leads us to believe that scrap prices and the ASP are due for a rebound and a re-adjustment to a more reasonable level despite our price assumption still taking a hit," it explained.

OSK said it had also revised downwards the sales volume for most upstream products, but higher sales for downstream products, considering that steel mills may roll the extra billets as finished goods.

It also said that local mills would not experience a credit crunch at least in the medium term although the current economic climate would darken the prospects of the steel industry. - Bernama

Jan 5, 2009 16:08
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