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Steel Price Hike Thought To Be Temporary

By Brooke C. Stoddard

After declining for months, steel prices rose recently in the United States, but the rise could be a spike that quickly descends. A common benchmark for steel, which is used in a variety of electrical equipment, has been on a downward slide all through 2013, falling from $640 a ton to around $570 near the end of May before rising again to more than $620. The Global Composite Stainless Steel 304 Index, monitoring steels that resist corrosion, peaked in January at 159.2 before falling steadily to 143.5 in June.

The run-up in the price of common steel in the United States is said to be on account of several factors. These include mechanical difficulties at a blast furnace of AK Steel in Middletown, Ohio, thought to dampen pig iron production there until autumn; technical problems at the Thyssen-Krupp mill in Brazil that ships steel to the United States; and labor difficulties at a U. S. Steel Corporation mill in Ontario that produces more than two million tons a year, much for the U. S. market.

But at least one analyst thought the rise in prices would soon abate. The Wall Street Journal quoted James Barnett of Grand Steel Products in Wixom, Michigan, as saying: “When prices go up fast like this, they often go down fast, too.” Indeed, the presumed sources for the price hikes stem from problems of supply, all of which can be seen self-correcting in several months. The WSJ reports that Barnett predicted the common steel price to recede again to below $600 in the fourth quarter and supply to be more assured.

Steel prices will be affected by more than the suppliers, of course. If the automotive industry is strong, steel demand will tend to hold up prices. The same can be said of the petroleum and natural-gas drilling and pipeline industries; when times are good for these, they order lots of steel. Another factor is a trade issue. U. S. steelmakers have filed a complaint against more than a half dozen foreign steel companies alleging selling below cost here in the United States. Complaints such as these alone tend to restrict imports, driving up prices in this country. If the suit fails, imports will be healthy and steel prices will tend to be lower.

In the steel market generally, 2013 is thought to be a fairly good year for purchasers. An Ernst & Young report for the global market looking at the whole year notes that mill utilization would likely remain below 80% despite removal of some excess capacity. Even China is experiencing overcapacity and lower demand. As predicted by Ernst & Young, capacity utilization is not likely to exceed 80% until next year and hardly 85% by 2015. Growth in steel demand is expected around the world, the exception being in Europe where significant declines in steel purchases are predicted owing to the region’s debt crisis.

Wall Street Journal, July 5, 2013

Global Steel 2013, Ernst & Young

 

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