Here’s a powerful illustration of economic theory in action. On the back of strong demand and rising input costs, the steel industry worldwide has spent the first nine months of the year raising prices. See for example these press releases from thriving European steelmaker Corus: 17 of the 30 announcements between January and September heralded price increases. In August they recorded higher turnover, deliveries, earnings, profits and return on capital for the group.
Then, last week, came this.
“In order to align its production levels with demand in the European market, Corus plans to reduce its production Oct-Dec by 1 million tonnes of crude steel, equivalent to 20% of its output. Corus has now decided to extend the production cuts beyond December. Corus expects to produce about 30% less crude steel than planned during the two quarters to the end of March 2009. Consequently Corus will temporarily idle one blast furnace at each of its Scunthorpe, IJmuiden and Port Talbot works …”
They are acting decisively in response to what they find in the market: and they are not alone.
Demand up, costs up. Costs up, prices up. Prices up, demand down. The bust isn’t just in housing. When you've finished enjoying your moment of triumph, Gordon, perhaps you could tell us: did this ‘start in America’ too ?