Cloudy Forecast

The expectations for the first quarter of 2010 are influenced by the state of the ferrous scrap and steel industries at the end of 2009. Prices increased in December of last year. Whether the beginning of 2010 would be a continuation of that trend, nobody really knew. In my opinion, most of the mills covered their scrap material needs for January and February of this year in late 2009 before coming back in early 2010 to do additional purchasing for March and April.

I believe the second quarter of 2010 will be worse than the first. Instead of going up, we will go down again. Instead of going forward, we will go backward.

A DEVELOPING PICTURE

New pictures of the Italian steel and foundry industries have begun to emerge in 2010. A lot of businesses that I currently work with will likely disappear. This year will be a year when we determine who is going to survive and who will die.

In 2011 we will have a firmer recovery. I think that the first six months of 2010 will show where we actually stand. So far we have been complaining and saying that the market is bad. But, in 2009, one way or another, we managed to survive.

2010 is going to be the year companies confirm their positions in the market. The reduction in Italian production was really important, and market observers wonder what is going to happen in 2010, especially with the rebar production.

I believe we have under-evaluated the economic crisis. We thought that 2009 was by far the worst of the crisis. But in Italy, as elsewhere, we had such a wonderful 2008 that we have been continuing on with that success in mind. Now the companies and buyers that did almost nothing in 2009 will have to face another year of uncertainty.

In Italy, we largely live off of exports to North Africa, mainly to Algeria. In the United Arab Emirates, which was another popular export destination for Italian scrap dealers, we had to stop sales last year.

The strengthening of the euro against the U.S. dollar has not really helped Italy. Despite this, we have Spain behaving quite aggressively at a time when we didn’t expect Spain to be so aggressive. We are wondering how Spain, which was announced to be in a worse position than Italy, managed to take more orders for exports than Italy. But the answer is simple: They kept on producing and kept on buying regularly. In the end, Spanish scrap companies were more competitive than Italian firms, which came as a big surprise to Italy.

Spain and Italy were both selling material to buyers in Algeria. Despite the similar trade situation, Spain was more competitive than Italy.

It was really a fight to the death in the rebar market. We Italians had been trying to push prices upward, and, when we realized we could not, we decreased our asking price, but not by enough.

Italy’s production costs may be higher than Spain’s. In my opinion, we want too much. We’ve been spoiled by wonderful margins in 2008. When executives start earning less, they start to complain that their companies are losing money; however, they are not actually losing money, they are just earning less.

The Spaniards accepted these decreased margins, asking buyers for enough to cover their costs with little to no revenue, but they keep on working.

In my opinion, continuing production and filling available orders would have given companies the chance to survive.

CONSISTENT BUYING

When I speak to somebody who is buying material every three or six months, I wonder how well he or she

understands the market trends.

By being in the market every month, buying what you need, you are going to have an average price for scrap at the end of the year that will enable you to be competitive in your scrap metal sourcing.

If you have been out of the market for six months, when you suddenly find yourself in need of material, you’ll be willing to buy at the highest prices.

EXPORT FORCES

Italy may need further consolidation of its steel industry to remain competitive, allowing the enough steel to be produced to cover our domestic market, with some material available from time to time for export orders.

Without export, we cannot manage to keep steel prices at an acceptable level for our businesses.

However, Italians are not export-oriented in principle and only consider the export market when they are desperate and when the local market doesn’t exist, as was the case in 2009. Italian steel companies were looking for export sales at any price, but always on a spot basis.

Steel producers need to remain consistent in their scrap buying and finished product sales, but, by the time they start to listen, it could be too late.