At present, the steel community has definite reasons to be happy with the prices negotiated for the first quarter of year 2000. The increases are widespread, although not substantial. Although, many still fuss about the lower than expected increase in the prices, the more sensible lot has seen the gradual and cautious rise as a sign of stability in the market and hopes for better days ahead.

The increase in prices are now widespread-over almost every product and everyregion-much different from the second and third quarter increases that remained confined more or less to products like slabs and HR coils.

Despite such visible strength in the steel market, production continues to be sluggish. In the first nine months of this year, global crude steel production has dropped by 1.8 per cent. But the same in the month of September was up by 5.1 per cent.

Interestingly, in the first nine months, the only major region that recorded increase in production was the CIS, which registered a rise of about 13.9 per cent.

There was a minor increase in Asia, at 1.9 per cent, mainly accounted for by a whopping 7.5 per cent growth in China. In the month of September also, the main increase was recorded in the CIS (40.5 per cent) and Asia (4.5 per cent). The only other region to record a positive growth in crude steel production was North America (2.5 per cent).

The increase in global steel production needs to be seen more carefully. The first few months of the year had seenproduction falling below the levels of last year, because those months last year had registered high production level as the crisis was not visible in its full form.

The output started falling from September onwards, and therefore the current growth achieved this year is mainly due to a lower base. In fact, this year's September production was lower than that in August. Perhaps, for the remaining months of the year the monthly steel production on a year-on-year basis will see some improvement.

The year may just end at the same level as that of last year. (Interesting to note, in September, crude steel production in EU jumped by 11 per cent over that in the previous month, whereas the same dropped 3.7 per cent in the CIS.)

It is beyond doubt that the main reason for the recovery of the global steel market is downward supply adjustment and some increase in demand in certain pockets. The pockets are mostly in Asia. The recent months have shown a weakening of steel demand in the US.

According to WorldSteel Dynamics, the one year contract prices are lower than the spot prices. Although construction boom in European Union, continues, the real consumption of steel in the region may not be even as much as last year's.

If consumption of steel is lower in North America (US in particular) and Europe-and also in South America, then it must be Asia that is gobbling up larger quantities of steel, as there is hardly any evidence of increased demand for steel in Africa and other regions.

Besides China, there is remarkable improvement in steel demand in Korea. Some strength is back in the Indian markets also, but not elsewhere. The recovery in the rest of Asia has been only marginal. This includes the markets in South East Asia.

The point is if global steel production remains unchanged, a slight change in demand would propel prices upwards, but perhaps not as much as one expects in a real boom. But the worry is, if the year's production has a higher share of the low priced CIS steel, then the prospects of amajor recovery in the commodity steel is doubtful.

The prices of billets and long products are already facing stiff resistance in South East and East Asia. The prices of long products are down in Japan as well. The slab prices are high because of strong flat products prices as well as closure of substantial steel making upstream facilities.

But, low prices of metallics should increase production of slabs that will increase its availability and then reduce slab prices. A lower slab prices will naturally have an impact on the downstream products as well.

Whereas, all seems to be well on the pricing front for the time being, downtrend in the industry cannot be ignored.

Many steel companies, not so competitive, have shut their shops partially or fully and are out of the market only waiting for better prices to be back.This is important, because what appears is that the current round of increases in production are from the more efficient companies. Now at certain acceptable level of prices, if thesecompanies, temporarily out of business, decide to re-enter the market, the only possible result is increased competition leading to drop in prices again.

The other factor to note is that trade cases have reduced global trading volumes. Apart from scores of anti-dumping and subsidy cases, many countries have in fact, resorted to measures like increasing import duties, bringing in quantitative restrictions and floor prices.

All these have afforded a reasonable strength to the domestic producers in their home markets. Many have adjusted their capacity to meet their domestic demand and thereby reducing pressure on the global market by simply abandoning it. But, very few major steel producers at present can afford to remain confined to their own countries, because steel is a global commodity.Isolation from the world market may be justified only for a while, and for a definite purpose.

In the absence of the needed rise in domestic demand, most major steel producing nations with a lot of capacity for exportswill have to re-enter the market as soon as possible. The current level of prices are just good enough for that.

(The author is Convener of Steel Exporters' Forum and the views expressed here are personal)