STEEL PRICES ARE UNPARALLELED IN RECENT HISTORY 

With global steel production and consumption running at all-time record highs, steel prices right around the world have been showing prodigious gains. Conjoined economic recovery in Japan , Europe and America lies behind the sensational increases that have been seen. Additional factors are surging infrastructure and business developments in China , India and some other countries.

Comparing July/August prices in 2004 with those for the same period in previous years, it is clear that current values are unparalleled in recent history for most parts of the world.

Perhaps the most extreme example is the USA , which has seen quite unheard-of gains in price as mills have successfully striven to pass on increases in costs for raw materials, energy and transport to their customers. They have used both basis price increases and special surcharges to achieve this.

The US transaction price for hot rolled coil in the third quarter of this year is at over $US700 per tonne – a figure which is more than $US200 higher than the previous record of $US495 per tonne recorded in the third quarter 1988. US coil prices have shot up by more than 125 percent in the last twelve months. Since they touched their low point of $US225 per tonne in period three 2001, coil prices have advanced by a remarkable 215 percent.

Part of the increase is undoubtedly attributable to the rationalisation of the US steel industry in the last couple of years. Some is due to shortages of raw materials, particularly coke. A proportion is the result of a reduction in import competition. Narrowing of the cost advantage traditionally held by mini-mill sheet producers, as a result of the rise in prices for scrap and the shortage of alternative furnace feeds such as pig iron and DRI/HBI is another factor.

Industry rationalisation has also been partly responsible for the surge in hot rolled coil prices in Japan . There, the third quarter price of ¥62,000 per tonne is 37 percent higher year-on-year, and 153 percent above its 2001 low point of ¥24,500 per tonne.

In addition to the domestic recovery in demand, high export sales are helping to buoy up Japanese steel prices. The country’s steel exports reached a new record level of just over 18 million tonnes in the first half of this year. This was a 7 percent increase on the 2003 performance.

Looking at sections and beams, some of the same factors lie behind current price highs. In the USA , in spite of additional capacity coming on to the market, transaction prices for sections have jumped by almost 80 percent over the last twelve months. The current level of $US590 per tonne is about 25 percent above the previous record high seen in 1988.

Sections prices in Japan have mostly been below ¥40,000 per tonne over the last decade. The so-called “H-beam war” – an intermittent struggle for market share between mini-mills and integrated mills – ensured no substantial gains. But today sections prices have surged to ¥67,000 per tonne: an astonishing rise of 135 percent since mid 2002.

Mills in the USA and Japan are likely to report a very strong level of steel output this year. Tightness in raw material supplies should not prevent Japanese crude steel production exceeding 111 million tonnes, its top point for more than a decade. US steel making looks set to be around 94 million tonnes - a four-year high.

Source: MEPS - International Steel Review