PERSPECTIVE: Steelmakers Anticipate Continued High Prices
John Wolz
Editor�s Note: The following are excerpts from recent weeks of the daily steel industry newspaper, American Metal Market:
�Steel sees no end to price hikes yet,� was the American Metals Market headline from the 2004 conference of the American Institute for International Steel.
Esmark CEO James Bouchard told the conference that steel would jump another $80 per ton to $690 for cold rolled and $620 for hot rolled.
�It is not going to evaporate like when we had 20 steel producers,� Bouchard forecast. �The bubble will not pop.� There is no inventory, and the second half of 2004 will have �lots of consumption and no fire sales.�
Cargill Ferrous International vice president Rick Dougherty observed that the prices are good for steel mills and suppliers of raw material, freight and logistics, but OEMs and steel consumers would lose.
Ferrostaal vice president John Foster advised steel executives to take advantage of the situation. �If customers threaten to walk through early third quarter, let them. They�ll have nowhere to go.�
On April 6, 2004, AMM reported, �Continued strong
demand for flat-rolled steel products coupled with light supplies will keep base prices high despite softening scrap prices, according to market sources � Scrap prices have begun to fall as demand from China has slowed, leading to predictions in some sectors of a gradual pricing decline. Most said they believed a decline, if it occurs, would come in the form of a reduction in surcharges rather than a cut in base prices.�
Molybdenum prices continue to move higher in both the United States and Europe, market sources told AMM for the April 1 edition � �Demand is holding up well, and there�s very little nearby material. I can�t see any change in course until the middle of the year at the earliest,� an unnamed trader told AMM.
Simon Mills, metals analyst at Metal Bulletin Research in London, suggested that �in the Chinese calendar 2004 is the Year of the Monkey. In stainless steel markets the bull would appear to be a more appropriate symbol.�
In addition to Chinese demand, Mills added global economic recovery as a cause.
In an April 5 article titled �Choking on high prices, stainless buyers learn CPR� AMM predicted stainless consumers �might soon be looking for alternative grades.�
Gulf & Northern Trading Co. president Seth Young stated, �Everyone is a little concerned about
Mark Parr, senior vice president of McDonald & Co. Securities Inc., pointed to inventory problems. �There�s a shortage environment in many product categories. Inventory levels are at low cycles.�
Parr predicted China will continue to have a stainless shortage during the next several years. �There is strong demand growth likely for the foreseeable future. China�s potential impact on the world is very dramatic.�
The shortage of material is a surprise. �I didn�t hear anyone talking about this eight months ago,� Parr commented.
Stainless consumers are considering lower-grade 301 and 201.
Dennis Muntz, vice president of logistics at TBS Shipping Services, predicted freight rates are headed up for the next quarter. �If you�re paying $40 [a ton] right now, I think you�ll be paying about $44� within 60 to 90 days.
In addition to China, demand from India and a shortage of container ships add pressure.
Transporting steel from Brazil was $10 a ton less than a year ago and $40 now.
Muntz forecast freight rates would not ease until at least 2005.
In a March 8, 2004, article titled �The Big Squeeze� AMM reported, �Steelmakers expect to get substantial steel price increases from automakers if their raw material costs continue at unprecedented levels, but they have been tight-lipped about how and when they will pass these heavy costs along to their most valued customers.�
International Steel Group CEO Rodney Mott told AMM, �We have not done anything more than informational sessions with our automotive contract customers to this point. We have warned them, though, that it will be necessary for us to collect surcharges if this continues.�
Transaction prices are up about 50% since automotive contracts were signed last year.
�We�re wondering: when all their little suppliers go bankrupt, what are Ford and GM going to do?�
Almost 60% of steel buyers surveyed by the Institute for Supply Management reported their March raw and in-process inventories were �too low for current demand.� Just seven months ago no buyers reported their inventories were too low for demand.
A total of 45% of steel buyers anticipate buying more foreign steel.
Even natural gas was cited as a pricing pressure. A cold Northeast winter spurred prices to $6, and historically high prices are not expected to slip until 2006, AMM reported on April 6.
In a March 8 article titled �The Big Three are empathetic, but so far a deal is a deal� AMM reported large automotive steel consumers �are resisting efforts to impose higher prices on long-term contracts for steel,� and a DaimlerChrysler representative expressed concern about the effects of higher prices on smaller suppliers.
�The brunt of this is being felt with the suppliers that don�t purchase the kinds of volumes we do,� DaimlerChrysler director of public policy Dennis Fitzgibbons told AMM.
DaimlerChrysler buys almost all steel on long-term contracts and is �resisting higher prices.�
�We�re concerned about it,� Fitzgibbons told AMM. �We know that they are feeling tremendous pressure.�
DaimlerChrysler has �taken steps to make government officials aware of what was happening in terms of global suppliers of steel and other raw materials required for automotive manufacturing.�
A Ford Motor Co. spokesperson stated no variations on long-term contracts were being allowed, and General Motors Corp. �has told steel suppliers it will not pay surcharges, no matter what the cost to mills.� \ �2004 FastenerNews.com
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