NORTH AMERICAN STEEL PRICES FIRM UP DESPITE IMPORT THREAT

The large price gap between North American steel markets and the rest of the world has been sucking in high volumes of imports. But this increased foreign competition does not appear to be damaging US domestic mills’ ability to raise their selling prices.

In the first two months of this year, US steel imports were just over 7 million short tons (6.3 million metric tonnes). This was about 18 percent more than the figures recorded during the previous two months, and a substantial 26 percent above January/February 2005.

The strong prices available in the US market are the main reason why imports are rising. As MEPS has regularly reported, North America has the world’s highest steel prices for most products. And the premiums are far from negligible: some types of steel have been selling for hundreds of dollars more in the USA and Canada than in many Asian and European countries.

The recent narrowing of these wide price differentials may put a brake on imports. But the inflow of steel has also been spurred by other factors such as the strength of US demand for steel and the low level of stocks in the US supply chain. Service centre inventories – in terms of months’ supply on hand – fell to a two-year low in March.

If imports had continued to surge into the US at the pace seen in January and February, 2006 would have been a record year for volume. But it appears the rate of arrivals is decelerating. US market sources report fewer offerings by foreign mills, with some of the steel that had been destined for North America going instead into Asia.

Tighter domestic and import supply is allowing US mills to advance their prices. The last couple of weeks have seen many reports of mill efforts to raise transaction prices for May orders. These increases – which in some cases include surcharges for scrap and other inputs – cover many long and flat products including merchant bars, beams, sheets and plates.

In response to the higher import levels, US mills have been making noises about unfair trade, foreign government subsidisation of steel producers, and other market-distorting practices. But they are not likely to succeed with any new anti-dumping or countervailing duty petitions under present circumstances. Although import volumes have risen, so have US steelmakers’ profits – making it impossible for them to provide the required proof that they have been injured.

The picture may soon be changing. Domestic availability of flat products should improve before the start of the second half - now that two blastfurnaces are back on stream after relines. This may ease the upward pressure on prices later in the year.

Source: MEPS - International Steel Review