Steel industry looking at hard times

The chief executives of the world’s biggest steel companies gathered this week in the City of Light amidst storm clouds looming on the industry’s horizon.

The executives, attending the annual meeting in Paris of the World Steel Association, said their companies are braced for falling steel prices as buyers delay orders because of concerns about the global economy, especially Europe.

“Buyers are staying out of the market because they think prices may go down even more,” said Bruno Bolfo, chairman of Swiss steel trader Duferco.

The buyers may be right. Meps, a U.K. Steel consultancy, forecast that average world steel prices will fall 8% by December from May, to $838 a ton.

There are worries specifically about Chinese demand. Inflationary pressures have forced China to cut back on the supply of credit, slowing the growth of steel consumption. The country has been the engine driving the industry’s expansion.

The cutbacks come from “tightening in credit conditions” while “(Chinese) manufacturing output as a whole has been weakening,” said John Lichtenstein, the Beijing-based head of consultancy Accenture.

The expected drop in prices threatens the outlook for 2012 profits for firms such as ArcelorMittal (MT, quote) and Posco (PKX, quote).

ArcelorMittal, which is traditionally optimistic, said it is preparing in the event “the environment becomes recessionary.”

No wonder then that, according to Meps, the stock prices of listed steel companies have underperformed global stock markets by 30% this year. The Market Vectors Steel ETF (SLX, quote) is down about 36% year-to-date.

It may take a resolution to the European crisis to reverse this trend.