Steel Price Hikes May End in 2Q

There’s no rust on the steel market in early 2011, as prices are at or racing toward record levels in many steel categories. But buyers can expect the well-oiled price increases to subside soon, said John Anton, Global Insight’s lead analyst for the steel market. In a March 9 Global Insight webinar, Anton said steel prices should be near their peak for 2011 and should start to decline next quarter.

The webinar offered pricing forecasts for a variety of steel categories, including scrap and hot-rolled steel, as well as pricing data for agricultural commodities. While each type of steel has its own set of market factors that affect pricing, Anton and Tom Runiewicz, principal, Industry Service, IHS Global Insight, expect price to increase through the first half of the year, but not to rise indefinitely.

One of the reasons, said Anton, is the capacity utilization in steel factories making some types of steel, which is currently low enough that it should be a buyers’ market. He said uncertainty over oil prices, political tensions in the Middle East, and concerns over possible inflation support the current price spike. However, he believes once these worries subside, the basic laws of supply and demand point toward lower prices in a pricing band that’s historically high, but down substantially from what steel buyers are experiencing right now. Anton said prices for scrap steel may come down by $100 a ton and that the current high prices for hot-rolled sheet steel are not sustainable.

“We are in a weak demand situation. But it will stay near $600 a ton. Sheet will come down by more than $200 a ton.” He also said if any steel buyers are experiencing shortages and are on allocation, they shouldn’t last very long.

This month’s cover story in Electrical Wholesaling explores the current price spikes in steel, as well as in copper and other commodities. Many of the same global and market trends that affect copper pricing shape steel prices, but generally speaking, steel usually offers a more stable pricing environment than cantankerous copper. Like any basic building material, pricing is directly tied to demand, and as in the copper market, China plays a huge role in the market because it’s the world’s biggest importer and producer of steel.

But you usually don’t see as many wild swings in pricing as you do with steel — at least until the current run-up in pricing, where prices for some types of steel have risen 50 percent or more. Hubbell Lighting recently offered its distributors pricing data that showed stainless steel had increased 53 percent since April 2009.

Some analysts expect steel price increases to stick — and to keep on climbing. An article posted at the Financial Times’ website (www.ft.com), included 2011 steel price projections from 11 steel industry executives and industry analysts. Their combined forecast for 2011 steel price increases averaged out to +32 percent. One analyst, Rod Beddows, chief executive of Hatch Corporate Finance, a business consultant and M&A advisory firm specializing in the metals industry, said he expects a 66 percent increase by year-end because of the increases in raw material costs and a desire by steel producers to push up their profit margins shredded by the 2008-2009 recession.

Interest in steel pricing pops up in some unexpected places, particularly prices for No. 1 Heavy Melting steel scrap. Even former Federal Reserve Chairman Alan Greenspan followed the price of this type of scrap steel and factored it into his economic forecasts because he, like other economists, believes when scrap prices are rising, it’s a dependable indicator that the economy is growing. According to the U.S. Geological Survey Department (USGS), Reston, Va., scrap prices fluctuated widely between about $290 and $367 per ton in 2010 (a 26.6% swing). The Scrap Bulletin (www.scrappricebulletin.com), which provides the USGS with this and other pricing data, said at press-time that regional prices in Chicago for No. 1 Heavy Melting steel scrap were in the $428-$429 range. However a posting on the website cautioned that this increase over 2010 may be due in part to the horrendous weather conditions the Midwest had to endure in early 2011. The Scrap Bulletin posting went on to say scrap prices saw an even bigger spike of more than $100 in 1Q 2010 because of bad weather before declining mid-year.

According to a recent USGS report, global demand for steel scrap is fueling this price increase. “North America has been experiencing a shortage of iron and steel scrap, owing to increased export demand, primarily from China, Turkey and Canada,” said the report. “Even significantly increased prices for scrap have not led to an increase in scrap availability, because almost all old scrap had been collected from farms, ranches and other sources, and recession-hit consumers have been keeping and repairing old appliances rather than disposing of them. Also, manufacturers were decreasing production, thus producing little new scrap for the scrap market.”

—Jim Lucy