17 Sep 2012

NZ steel firms 'may be forced to merge'

7:46 am on 17 September 2012

Analysts predict plummeting steel prices and demand may force New Zealand's steel firms to merge in order to survive.

Firms' margins have been squeezed in part because of the slowdown in China's economy which is pushing more Chinese steel into the global marketplace.

Falling steel prices in China are putting pressure on the profitability of New Zealand's steel companies.

China accounts for around half of the world's steel production and consumption.

But over recent times falling domestic demand in China has prompted Chinese firms to export more steel, depressing world prices.

The price of iron ore, used in steel-making, has dropped almost a quarter in the last month, while the price of rebar, a common type of steel used in construction, has dropped by 9%.

Craigs Investment Partners head of private wealth research Mark Lister says New Zealand's steel companies are under pressure from these weaker steel prices.

He says the recent Fletcher Building result shows their steel division is struggling more than the other parts of their business.

Mr Lister says New Zealand is a relatively small market and when it's not growing because demand is low, there is a need for potential rationalisation. He says there could be some consolidation in the industry.

Steel prices may yet get a boost, however, given a decision by China's national planning body to invest $US157 billion in rail and other infrastructure projects to stimulate its cooling economy.