BYLINE: JANET NODAR
Excess capacity and dismal demand spell trouble
It's pretty grim out there right now," said John Foster, chief operating officer and executive vice president of commercial for Coutinho & Ferrostaal Inc., the Houston hub of global steel trading firm Coutinho & Ferrostaal GmbH & Co. KG.
"The whole global market is having trouble," he said. "People are trying to export to the U.S., and we are starting to see some interesting imports, starting to see that pricing gap. But the problem is the demand side of things. It's hard to get enough volume together to justify a ship." Inducing a ship to come to the U.S. normally takes a minimum of 5,000 tons, and orders that large are hard to come by, according to Foster.
The steel plate and pipe markets are the most distressed, Foster said. "They flew highest and closest to the sun last year, and they have fallen farthest." He estimates that there is something between 300,000 and 500,000 tons of pipe in the Houston vicinity, including mountains of it at the Port of Houston, where steel tonnage jumped 33 percent during 2008, to 6,303,464 tons from 4,742,414 tons in 2007. Interim Executive Director Wade Battles said that the port expects this pace to slow to 4 million tons or less during 2009.
"Some of (that pipe) is sold, and some is speculative," Foster said. Some customers have no room for the product and others are attempting to renegotiate orders made months ago when steel prices were much higher. "It's a serious problem in the industry right now," he said. "There is really no room to do that (renegotiate prices). We work on fairly small margins and can't afford to give up the types of discount the end users are looking for."
Most traders do their business on a "back-to-back" basis; they don't buy unless they already have a customer, Foster said. However, in 2008 and late 2007, prices were so high that they pushed the industry into buying on position. "If you bought or priced something out in January, it was …