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Steel Prices Jump, Spurring Protests From Customers
By PAUL GLADER
Staff Reporter of THE WALL STREET JOURNAL
Steel companies are passing on double-digit price increases to their customers, prompting protest from buyers, including General Motors Corp., about both the pace of the run-up and the addition of supplemental surcharges to existing contracts.
While the increases are most intense in the U.S., prices are rising around the world. In China, steel prices rose 20% for some products in the past year, while prices for exported Japanese steel increased 13%. South Korea-based Posco this week said it would raise domestic prices of hot and cold-rolled steel products 14% starting Feb. 9. Prices in Europe are flat compared with a year ago, but are expected to rise this year, according to independent New York-based analyst Charles Bradford.
China's demand has boosted steel prices much as they have boosted those of other raw materials, from other metals to energy to cotton. Chinese consumption rose 30% last year, and the fast-growing nation now consumes one-third of the world output of rolled steel. Rising raw material, energy and shipping costs also have prompted the rise.
In the U.S., the weak dollar is playing a role, limiting the purchasing power of American customers to buy steel from foreign producers, thereby safeguarding the rising prices of U.S. steelmakers. Ocean-shipping rates have more than doubled in some markets in recent months, sheltering domestic supply and demand in many markets around the world. Prices for iron ore, a main ingredient in steelmaking, are rising 19% in some cases.
In the U.S., steelmakers boosted first-quarter prices on benchmark hot-rolled steel to between $350 and $370 a ton, averaging to a 12% increase from the December price of $320 a ton, according to Merrill Lynch analyst Daniel Roling. Higher prices are also slated for the second quarter. Indeed, Pittsburgh-based U.S. Steel Corp. recently announced increases for April 4 orders of $50 per ton of hot-rolled steel and $60 per ton on cold-rolled steel.
"If the economy stays strong and we see the type of growth we saw in the fourth quarter, prices could stay up for an extended period," says Thomas Usher, chairman and chief executive of U.S. Steel, which already says it doesn't have any more steel to sell this quarter. Mr. Roling expects hot-rolled prices will end the year at $385 per ton, a 30% increase over last year's average price of $295.
In addition to the higher prices, steelmakers are also adding surcharges on steel, once a rarity in the industry. U.S. Steel added a $30 per ton surcharge "in effect until further notice" on all shipments starting Feb. 1. Other companies, such as International Steel Group Inc., Nucor Corp. and AK Steel Corp. are following with similar surcharges.
Those surcharges, as well as higher spot-market prices, are being challenged by big customers like GM. GM said recent invoices from several steel suppliers in the U.S. and Canada included "nonnegotiated extra charges" such as mill surcharges and premium freight charges.
The automotive giant this month sent a letter to those suppliers, warning that such invoices, "will be rejected." GM spokesman Tom Wickham said, "We expect them to live up to that contract." Ford Motor Co. declined to comment specifically on surcharge add-ons.
U.S. Steel spokesman John Armstrong says the surcharges "are intended to cover a portion of the extraordinary increases of raw materials and transportation costs."
Smaller industries that don't have the clout of a GM are buying in advance to avoid anticipated higher prices. One is the $10 billion-a-year wood-truss building industry, whose 1,800 wood truss plants in the U.S. use $40 million of galvanized steel plates each year to hold together their wood trusses, which go into houses and other buildings. Kirk Grundahl, executive director of the Madison, Wis., Wood Truss Council of America, says members began stocking up on plates when they heard word of increases in December.
He says the higher steel prices eventually will be felt by other businesses down the line. "The only option to remain profitable is to pass on cost increases that occur."
Lester Trilla, president of Trilla Steel Drum Corp. in Chicago, has written his congressman asking for intervention and "if need be, put price controls on steel." He says price increases slated for April 1 will add $2.80 to the cost of a $15, 50-pound steel drum, used to hold chemicals, petroleum and food.
Higher steel prices have sent steel stocks rising, in some cases to 52-week highs, and prompting some analysts to raise 2004 earnings expectations for some companies. |
