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 March economic figures showed an upturn.

 

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