Slump in Steel Price Expected to Lead to Rising Cargo Claims - 28/11/2008

Alert for a potential rise in steel cargo claims as a result of falling steel prices.

Commodity prices in general are dropping and we have seen a specific example of this in the case of steel products from the Black Sea region.  Our figures from Romania and Bulgaria point to a major slump in the price of steel and this is expected to lead to an increase in the number of steel cargo claims.

Turkey, Europe’s third largest producer of steel, has shown a particularly sharp drop in price and production levels of steel.  The export price of Turkish steel peaked in July 2008.  However, due to the global financial crisis and a rapid deterioration in demand, steel prices plummeted faster than expected.  For example several months ago the price of steel coils was approximately US$1200 per ton CIF and the price has now almost halved to approximately US$670. In response to this drop in prices the leading Turkish steel producers cut back on production to minimize losses and volumes are now the lowest since 2006.

This presents a new risk of higher levels of steel cargo claims.  The steel industry is cyclical and when the economy is weak, buyers of steel tend to reject more cargo than usual, a phenomenon called “market rejection”. With steel prices dropping between the time of purchase and of delivery, and the secondary scrap market also weak, there is a heightened risk of receivers rejecting cargo.

Owners should be aware of the increased risk that in the present economic situation and weakened secondary steel markets, receivers could become particularly sensitive with respect to steel shipments.  A pre-loading/loading inspection by a qualified surveyor will help to ensure that owners are adequately protected.