Thursday, April 10, 2008

Steel buyers face record-high prices as imports slow to a halt

Steel prices in the U.S. continue to soar due to higher material costs, but prices outside the U.S. are spiraling even higher, slowing the flow of low-cost import steel to the domestic market.

In the most recent Purchasing poll, 82% of steel buyers polled in March reported paying higher prices for steel in the U.S. and the worst is not over. Market mavens say buyers will have to pay higher steel prices at least through June—especially since low-priced foreign steel imports have all but dried up.

"Steel prices outside the U.S. are much higher than in the U.S., despite the recent large increase in domestic prices," says analyst Charles Bradford at Bradford Research/Soleil Securities in New York. "Thus, imports are plummeting, down 9.6% in January compared to a year ago, and exports rose by more than 30%." So, if the domestic mills achieve the announced $800/ton price for hot-rolled sheet for May deliveries, transaction prices for this benchmark flat-rolled steel will have increased by 57.5% from the latest cyclical low of $508 last August.

Metals service centers already are forecasting that OEM buyers could see prices of $860–$880/ton this summer for a delivered ton of hot-rolled sheet steel, pickled and oiled and then cut into sheets. "[Higher] U.S. pricing momentum continues to be driven by subdued import activity, low service-center inventory levels and impacts from global consolidation activity," writes analyst Mark Parr at KeyBanc Capital Markets in Cleveland in a recent market update. "U.S. pricing momentum also is in line with global market movements."

Currently, sheet and plate prices already are 20% higher than late last summer, the low-price point of the previous cycle. The latest steel pricing information from shows hot-rolled sheet in coil sold for an average $665/ton in February, up 22% from $544 in December; cold-rolled sheet in coil inflated 21% to $752 from $624 and hot-dipped galvanized escalated 13% to $773 from $684. Electrogalvanized sheet in coil at $807 in February was inflated 23% from $658 in December. Meanwhile, hot-rolled plate in coil jumped 13.5% to $798 from $703, while cut plate at $841 was 8.5% higher than $776 in December.

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