In a further sign of weak demand in construction and manufacturing, worldwide production of steel remains subdued, the most recent data shows.
In June, the world produced a total of 127.9 million tonnes (MT) of crude steel, data from the World Steel Association indicates – a decrease of 0.1 per cent when compared with the same month in 2011.
Over the first six months of the year, though overall steel production volumes are up, they have risen by less than one per cent (0.9 per cent) and have actually not increased at all outside of China.
Despite manufacturers pulling back on supply, the world remains awash with steel; in June, the global steel capacity utilisation ratio stood at 80.4 (down from 82.8 one year ago), meaning that the world is only consuming just over eight tenths of the steel that it has the capacity to produce.
Given this, it is hardly surprising that prices continue to fall. At 747, the All Carbon Steel Products Composite Price stood at its lowest level since December 2010, and is well down on its peak of 913 in April last year.
Further, the latest data from the US showed that construction input prices for iron and steel dropped by 3.8 per cent in that country during June and are down six per cent year on year.
Along with weak demand in advanced economies, steel prices have been impacted for some time by high levels of inventory in China.
This is terrible news for Australian steelmakers, who are not only battling weak global demand but also the impact of the persistently high Australian dollar.
In this context, it is hardly surprising that local steel makers are paring back operations. Arrium Ltd, formerly known as OneSteel, has gone so far as to change its name and refocus operations toward more profitable areas such as mining.
In contrast, for builders, declining steel prices are helping to some extent to reduce upward pressure on input costs at a time of weak demand.
That said, the price drops are also partially symptomatic of a significant problem for builders both in Australia and throughout many parts of the developed world: low levels of demand for services.