10/2/2012 2:21:00 AM
NEWS BRIEFS
Are Steel Prices Poised To Fall?
“While the price of iron ore — the main raw material in steel — has dropped precipitously this year, the decline hasn’t had the effect of lowering the price of steel used by manufacturers very much,” reports Dan Shingler of Crain’s Cleveland Business.
The problem? “Tremendous” consolidation in the steel industry.
“There are just a few big steel companies left now, and they’re going to control the marketplace and the price,” said Jeff Hepner, owner and president of Telefast Industries.
As steel prices fall, steel producers can cut production to stabilize the market, keeping prices lagging behind cost decreases.
“That’s why when the price of iron ore collapsed by nearly 50% — to about $90 a ton last month from about $177 in September 2011 — the price of steel only came down a fraction of that amount,” Shingler writes.
But in the fastener industry, where steel costs account for as much as 50% or more of total costs, even a small reduction in steel prices can boost the bottom line.
“Steel, depending on the part, can be as high as 50% of the cost,” Hepner told Crain’s. “So if it’s a 6% decline on 50%, it works out to be about 3% of the total cost. So 6% is significant — it’s not huge, but it’s a factor.”
But the longer the ore prices remain down, the more likely that steel prices will follow as U.S. steel manufacturers, which prefer using scrap iron and steel rather than ore, find lower costs working their way into inventories.
“If raw material costs go down sufficiently, I would be certain that some of that cost savings would get passed back to the end-users,” stated Chicago-based steel analyst Michelle Applebaum, founder of the boutique research firm Steel Market Intelligence. ©2012 GlobalFastenerNews.com
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