WSJ -- World Steel Prices Gain Steam, Fueled by Economic Growth ..............................
April 6, 2006
World Steel Prices Gain Steam, Fueled by Economic Growth
Rising Output and Imports Should Act as Restraints, But Stockpiling Is a Worry
By PAUL GLADER
World steel prices are returning to last year's high level, following an end-of-year lull, as steady economic growth fuels strong demand.
The upswing could mean higher raw-materials costs for manufacturers. But, industry observers still don't expect steel prices to match heights reached in 2004, in part because of rising steel output and an increasing flow of cheaper imports into the U.S. and elsewhere. Analysts say steel consumers around the world, from auto makers in North America to commercial builders in China, are restocking material and showing increased demand for steel, at least in the short term.
The Metals Service Center Institute says U.S. shipments of steel in the first two months of the year were up 3.5% from the same period a year earlier among the institute's members -- distributors that buy huge portions of metal to resell to customers that include aerospace companies and commercial builders.
One worry within the steel industry is that buyers, anticipating higher prices, are building stockpiles -- creating a dynamic that sends prices up even faster but ultimately leads to a slump. However, some industry executives say they have learned lessons from past cycles on how to avoid this accordion effect.
Prices will fluctuate, said David Hannah, chief executive of Reliance Steel & Aluminum Co. in Los Angeles. "We just don't think they will fluctuate as much as in the past." He said his company isn't building huge inventories before prices run up further, but, rather, it is buying inventory as needed.
The average price of hot-rolled coils, a common steel product, is about $570 a ton in the U.S., up 15% from September. "We have seen price increases across all markets," said John Novak, a managing director for industrial products at CIBC World Markets in Toronto. Analysts say nearly all products, including cold-rolled coils, reinforcing bar and stainless steel, are showing slight price increases.
Steelmakers already have announced additional price increases that will take effect in coming months. Customers say Charlotte, N.C., steelmaker Nucor Corp. raised the price of hot-rolled coil by $25 a ton this month and a further $10 a ton for May. U.S. Steel Corp., of Pittsburgh, raised prices at its mills in Europe by $33 a ton for June deliveries of hot-rolled, cold-rolled and coated-sheet products, while China's largest steelmaker, Shanghai Baosteel Group Corp., raised prices 17% on hot-rolled coils in late March. AK Steel Holding Corp., of Middletown, Ohio, and Allegheny Technologies Inc., of Pittsburgh, have announced increases in stainless-steel prices of 6% to 9% starting May 1.
A few steelmakers are increasing production to meet demand and to benefit from higher prices. U.S. Steel has been bringing its No. 14 blast furnace back on line in Gary, Ind., and Netherlands-based Mittal Steel Co.'s U.S. arm is restarting an idled blast furnace in Cleveland.
UBS analyst Timna Tanners estimates prices for hot-rolled coil in 2006 will be $548 a ton on average, up about 9% from earlier predictions of an average price of $504, and compared with $547 last year. Like many analysts, she estimates the prices of steel, as well as steel scrap, will rise in the second quarter but taper off in the third and fourth quarters.
This year's price rise is expected to be more manageable than the drastic increase in 2004 that saw steel prices double to nearly $800 per ton of hot-rolled coil. While prices are rising in North America, so, too, are imports. Preliminary data from the U.S. Census Bureau show that imports of finished steel products into the U.S. were up 24% to 5.2 million tons of steel in the first two months of 2006, compared with a year earlier. The greatest increase in imports was in steel wire rod, structural shapes and reinforcing bars, and came largely from China, Turkey and Taiwan. "Domestic mills have been aiming to keep prices consistent through controlling supply and not raising prices enough to invite further imports," Ms. Tanners said in a report.
Trade groups are divided on the need for imports. Small manufacturing companies and steel importers say imports should increase, especially on products such as hot-rolled coils to offer more supply options. But domestic producers express concern about growth and source of imports.
Write to Paul Glader at paul.glader@wsj.com
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