Nowadays, the most frequently asked question in the steel markets is the future of flats markets. All the recent developments and the successive price decreases have bothered several companies involved in steel sector, in particular traders. Thus, everyone is surprised and asking what is going to happen in the coming period. Although it is hard to answer this question for short-term developments, it is easier to answer for long-term.
Looking initially at the current situation, the recent downtrend in oil prices has affected both steel and raw material prices. But, why do oil prices decline? The answer is very simple. The financial crisis seen in the US economy has expanded its scope and exceeded financial area, affecting real sector. Thus, the locomotive countries such as Japan, Germany and the UK, have had the highest level of inflation rate ever seen in the past 25 years and all expected an economic recession. The most important development has happened in South Korea economy. In the recent ten days, South Korea - a country which has the world's 6th largest exchange reserves- has been flowing a large sum of hot money. This situation in South Korea can also be an important indicator. The developing markets including Turkey currently experience a sort of "Far Eastern syndrome". Despite all the measures taken by South Korea, which has an exchange reserve of around $250 billion, the inability of the country in maintaining its currency value have started to affect other countries.
This situation is more or less the same in the UK and Germany. The markets in these countries are currently characterized by a big slackness. The cautions taken in order to avoid a liquidity shortage only prevent the decline from not being too sharp. However, the current situation with regard to inflation, external debt and other critical data in terms of economics is not very positive. For the first time, the signal of stagnation signal is very remarkable. The most natural development in this context will be to suspend the investments in such an ambiguity. For this reason, a lot of investments have been suspended in Europe. Looking at the Far East, important countries such as South Korea, China and Japan are experiencing the lowest economic growth rates ever seen in recent years.
All of these economic data, in addition to the recent unfavorable events, have caused a halt in hot money flow in markets. The common disputed issue in the global sector is the significant liquidity shortage. This shortage will furher increase with slowdown in business activities. This case brought up by ambiguity, will heat up with the help of pessimistic atmosphere. Despite several countries, in particular the US, have taken measures in order to overcome this situation, these measures have only provided a gradual decrease. Even the world's biggest economies such as the US, EU and Japan injected hot money to the market in order to avoid huge declines.
It is not surprising to see that all these developments have affected flats consumption since flat steel is the main raw material for the sectors such as automotive, white goods, infrastructure investments, heating-cooling, transportation, machine, etc.. - the sectors mostly affected by the economic recession. The most important thing is how long this recession will last. The investors will not be resuming their investments unless the messy atmosphere has been cleared away. End-users will not be willing to spend their money until the ambiguity disappears. So, how long will this situation last?
There are various comments on this issue. According to Mr. Bernanke, Chairman of Federal Reserve Bank of USA, the effects of this case may last for longer and more thoroughly than it is expected. Therefore, the US may raise interest rates in order to attract money. President of ESC, Jean-Claude Trichet's recent empahis on inflation rate rather than stagnation concern, made an adverse effect on the markets which are already worried about stagnation. Trichet revised Euro region growth estimation for 2008, from 1,8 percent to 1,4 percent and inflation rate from 3,4 percent to 3,5 percent. In fact, according to major investment firms, appreciation of the US dollar is an indication for the markets' bad course. Because, they agree that the US dollar is rising due to the decline seen in prices of oil and other commodities. Against the background of this negative situation, there is a minority saying that the markets will see a fluctuation in the short term. Especially leaders of this business and heads of country economies are trying to draw an optimistic picture; however it is a known fact that they are forced to draw this picture.
In conclusion, it is not likely that this fluctuation will end neither until the US elections period nor the first half of 2009. It may be estimated that measures taken may halt the decrease in the markets; however delivering an opinion for the opposite movements will be too optimistic.
According to these facts and data, the best comment will be that the things will get better following the overcome of financial crisis occurred in large scale economies, in particular the US and injection of money to real sector. So, it will be the best to take cautious steps until this statement comes true. Especially when it is taken into consideration that flats sector is in parallel with economic developments, it would be too brave to make definite decisions in advance.