South Africa’s leading primary steel producer, ArcelorMittal South Africa, sent notices to its customers earlier this week indicating that steel prices would fall again by between 5% and 8% as from Tuesday, April 1.

The April cuts were over and above the average 40% price reduction that had been implemented since domestic steel prices peaked in August last year. In fact, between January and August last year, there had been seven upward revisions to the price of hot-rolled coil, which surged by over 100%, and six increases in the price of wire rod.

The latest cut follows on from two months of price rollovers, and appears to have been precipitated by the recent strengthening in the rand and continued steel price weakness elsewhere in the world.

The group sets its domestic selling prices using a pricing model that is formulated using a basket of domestic prices charged in a range of markets around the world.

In its letter to customers, the JSE-listed group said that the base price of all its flat and long products would decrease on average by R500/t for all orders confirmed for delivery as from April 1.

However, the decrease on PL110 plate and PL111 quench and tempered plate was even larger, at R750/t.

The price decline coincided with the release of the group’s annual report, in which CEO Nku Nyembezi-Heita indicated that there was still significant uncertainty about markets, demand, pricing and the future economic landscape.

“Domestic steel demand suffered a significant contraction in the fourth quarter, which is not expected to reverse for at least the greater part of 2009,” she wrote.

The company took the unprecedented step of shutting 54% of its capacity during the fourth quarter of 2008, and was following its global parent's lead in sustaining production cuts of about 35%.

South Africa’s second-largest steel producer Highveld Steel & Vanadium said in mid-March that it would produce only on orders received, but put no figure on the extent to which production would be cut during 2009.

The World Steel Association said recently that capacity usage was around 50% to 60% currently, with global production down 24% in January.

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