The local steel industry is struggling as demand continues to weaken and sales, cashflows and profits dry up.

So much so that our two big producers, OneSteel and BlueScope, remain under enormous financial and market place pressures.

The same pressures are pushing down on our iron ore and coking coal production levels and exports, despite attempts by BHP Billiton and Rio Tinto to maintain output from their iron ore mines in WA.

Two weeks ago our number two steelmaker, OneSteel, revealed a restructuring plan that will cut production, an unknown number of jobs and cost it profits this half. OneSteel also raised more than $580 million from shareholders earlier this month to give it enough working capital to finance its business this half. OneSteel is looking for more money from its retail shareholders, but isn’t hopeful.

This morning Deutsche Bank analysts forecast that the number one steel group, BlueScope, would be looking for up to $1 billion in new capital through a share issue to help it remain in business.

Not only has BlueScope suffered a sharp fall in demand, but it has taken its big blast furnace at Port Kembla down for relining which is putting further pressure on the company’s finances.

Deutsche said “We believe it is realistic BlueScope would be prudent in assessing its balance sheet risk and would not rule out a A$1 billion capital raising.” That sale could come at a 30% discount to the market price of $2.49. But BlueScope shares then fell this morning on the report, losing 13 cents to $2.36, a fall of more than 5%.

BlueScope raised $413 million in a placement and in an offer to shareholders in December and January, so another big raising so soon after won’t go down well.

But analysts say the two companies, like their overseas counterparts, are doing it tough. Falling prices and sales revenue is cutting cashflow and forcing down their interest cover on their debts. This is expected to continue for most of this year as global steel production and demand is not forecast to improve, despite claims that China is on the turn.

In fact, the World Steel Association this week forecast that worldwide apparent steel use is expected to fall by 14.9% this year to 1,018.6 million tonnes after declining by -1.4% last year.

“However, steel demand is expected to stabilise in the latter part of 2009 leading to a mild recovery in 2010,” the Association said.

“The progression of the US financial crisis into a global economic crisis brought about a massive and regionally synchronised global decline of steel demand in late 2008. For most of the world this trend has continued into the first quarter of 2009. Improvement in steel consumption for the second half of 2009 will depend on the effects of government stimulation packages, the continued stabilisation of financial systems and a return of some consumer confidence. Steel remains a vital core material for today and tomorrow’s world and the industry is well positioned to respond to changing market conditions.”

The US is expected to show the largest decline in steel demand in the post-war period. In 2009, apparent steel use is expected to fall by 36.6% and the Association said Europe will be the most affected region outside NAFTA. The EU 27, Other Europe, and CIS regions are expected to show a decline of more than 25% in their apparent steel use in 2009.

Japan has also been affected by a sharp decline in the exports of its steel-using industries, especially automotive and machinery. Apparent steel use is expected to fall by -20.4% this year.

But the Association said China is expected to see a fall of 5% in apparent steel use in 2009 as the ongoing global economic crisis hits China’s exports in addition to the effects of a slowing domestic economy.

“The last time that China’s apparent steel use recorded negative growth was in 1995 when apparent steel use fell by -17.2% following the real estate bubble burst. Apparent steel use for the world excluding China is expected to decline by -20.4% in 2009.”

Tonight we will learn that the world’s biggest steel producer, Arcelor Mittal will report a loss and probably reveal further cuts to production and renegotiations on its $US36 billion in debt. It’s poor result will be sharply down on a $US2 billion-plus profit a year ago.

That will come after losses for US Steel and Nucor in the US and losses or sharp profit falls at steel groups in Europe, South Korea and China.