MEPS - NORTH AMERICAN AVERAGE CARBON STEEL PRICE FORECAST FOR SEPTEMBER 2004

Over the past few months our forecasts for flat products have been lower than the actual negotiated figures. This has not only been a surprise to us but also to most steel producers. We have seen profit upgrades from many of the major North American steel mills in recent weeks as a result of the higher than expected prices obtained in the market. Rising scrap costs over the period changed market sentiment.

A large percentage of production is via the mini-mill route. Consequently, scrap costs have a significant effect on selling prices in the flat products categories through the implementation of scrap surcharges. These have increased by up to $US150 per tonne for the electric steelmakers in the last two months to September. The integrated mills are imposing more modest scrap surcharges but increasing basis prices by substantial amounts as they follow their competitors upwards.

Strip mill low transaction values have moved up in the range $US50 to 106 per tonne since July due to a combination of tight supply and higher mill input costs. Scrap surcharges are expected to move into reverse in November and steel prices are likely to return, in December, to just above the previous highs achieved in July. The plate market is even more buoyant. Demand is very strong and supply restricted. Transaction prices jumped higher than anyone could have anticipated. However, a decrease is predicted in November as scrap surcharges decline.

We anticipate a steady decline in prices through 2005 after the downward adjustment in November and December. Our predictions could, however, be upset if scrap prices soar upwards once again.

Higher scrap charges have had little impact on steel prices in the long products sector over the past two months. This is because commercial and industrial construction has failed to recover in the region. Major projects are being cancelled or put on hold. Demand for steel is slowing down and the threat from imports is always in the background.

Source: MEPS - STEEL PRICES ON-LINE (regional steel price tables & forecasts)