MEPS CELEBRATES 30 YEARS OF ANALYSING STEEL PRICES

The global steel sector has undergone massive changes over the past three decades. So far, steel buyers have been the main beneficiaries from the emergence of a leaner but fitter supplying industry in Western countries. This may not be the case for Japanese purchasing managers.

Through the 1980’s, US steel was quite expensive – averaging approximately $US400 per tonne for the benchmark hot rolled coil product. Over the same time period, prices in the EU almost doubled to reach a similar figure at the end of the 1980’s. The next decade was a troubled time for the steel manufacturers as negotiated prices trended downwards in the US, EU and Japan when measured in US dollars. This situation continued into the early part of the next millennium. At that time, prices for the benchmark product fell to values in the range $US195/255 mark.

The turning point came in 2002. As growth returned to the major economies, steel prices started to pick up quite significantly in all parts of the world – reaching between $US322 and 367 per tonne. This was followed by a massive escalation in steel prices in 2004 as a result of a substantial hike in coal and iron ore costs on the back of rising energy figures.

In Western nations a correction occurred in 2005 and was followed by an upturn in steel selling values in 2006 and a mini revival in 2007. It was becoming clear that the seven year steel cycle of the 1980’s and the three year cycle of the 1990’s and early “noughties” was shortening.

Strong demand from China for steelmaking raw materials allowed the miners to inflate prices once again. The combination of strong steel demand and tight coal and iron supplies pushed hot rolled coil prices in the western world to record highs in 2008. Steel prices collapsed in the autumn of 2008 as a result of the global economic crisis. Current hot rolled coil selling values in Japan, US and EU are in the range $US590/635 per tonne. After a minor correction, further price growth is anticipated in 2010. One interesting feature of recent steel price agreements is that for the last three cycles, the peak to peak values have occurred every two years.

Despite the upturn in prices over the past nine years, current steel selling figures in the western world are substantially below those applicable at the start of the 1980’s, when adjusted for inflation over the period. Over the past thirty years, the US consumer price index has risen by 175 percent. In the EU it has grown by 95 percent. In Japan, the figure is 35 percent.


The MEPS inflation adjusted US hot rolled coil price in December 2009 is just 54 percent of its value in 1980. The comparable figure for the EU (Germany) is 66 percent below the outturn 30 years earlier.

These figures illustrate just how much the steel sector in the west has been forced to adjust to new market conditions over the period. The first ten years were characterised by internal restructuring within the steel companies. Tens of thousands of jobs were lost as steelmakers strived to meet the challenge of extremely slow growth in the industry. The UK government privatisation of British Steel set the tone for the following ten years. Many state owned steel works were divested over this period as the industry embarked on a period of rationalisation. This decade has been one of consolidation as large steel companies merged or underwent hostile takeovers.

Larger companies have developed across the steel sector. Moreover, they have become more market oriented and not production driven. Despite the current downturn in steel most of the companies have survived. This is mainly due to the mills adjusting output to meet the requirements of the market.

More consolidation will follow in the next decade as the weaker enterprises are taken over by the strong.

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