Increasing
demand, a weaker dollar and higher input costs mean consumers will
pay more.
By
Tonya Vinas
Just
when they thought they would get a break on steel prices again,
U.S. manufacturers are facing rising prices prompted by a healthier
domestic steel industry and a host of global forces.
As
of press time, a ton of hot-rolled sheet steel was approaching $400,
up more than $50 per ton from early winter and about $100 from January
2002.
Pittsburgh-based United States Steel Corp. announced it will raise
prices $50 to $60 per ton in April, and many steel makers such as
Cleveland-based International Steel Group are adding surcharges
to cover increases in their costs. Industries that rely heavily
on steel, such as automobiles, consumer durables and construction,
are facing a potentially drastic rise in costs this year.
For instance, when Caterpillar Inc., Peoria, Ill., announced fourth-quarter
earnings in January and projected a 12% rise in sales, the company
said it expects to pay more for steel. Director of investor relations
Nancy Snowden said the company would offset the spike with cost
cutting, as it has in the past.
U.S. steel producers say the rise in prices reflects higher raw-materials
and transportation costs and a recovery in their industry, which
started a rapid decline in 2001 following a surge of cheaper imports
and an implosion of pension and retiree health-care costs. According
to the American Iron and Steel Institute (AISI), a lobbying group
for North America's largest producers, steel prices in the United
States remain below other countries' and are actually moving closer
to normal. Two years ago, when hot-rolled sheet was selling for
less than $250 a ton, producers were selling so far below costs
that many mills filed for bankruptcy and shut down. (Quoting data
from "Purchasing" magazine, AISI says the average price
for hot-rolled steel during the period 1980-2000 period was $339
per ton and peaked at $400 in 2003 following imposition of the president's
order for steel tariffs on imports.)
Indeed, while the steel tariffs drove up prices for U.S.-made steel
in 2002 and 2003, it appears now that prices are being affected
more by global forces -- including greater demand and lower inventories.
According to MEPS, a UK steel consultancy and research company,
$400 per ton is the global average for hot-rolled sheet, and world
consumption of steel is expected to reach 1 billion tons this year,
more than 100 million more tons than was consumed in 2001. About
80% of this year's increase will come from Asia, particularly China.
Additionally, a weaker U.S. dollar means imported steel -- a cheaper
alternative in recent years -- is now selling at a much higher price.
Steel price increases in the UAE are worrying for contractors, reported
Construction Week. Eight months ago steel was Dhs800 a tonne, now
it is close to Dhs2,000. This is a problem for fixed price contracts,
but for new tenders prices will be inflated to accomodate higher
steel costs.
The New York Times | March 13, 2004 | ANDREW POLLACK and KEITH BRADSHER
LOS ANGELES, March 12 — At a time when toys, televisions
and other products made in China are flooding into the United States,
helping push the trade deficit to record levels, there is at least
one American product for which China has a nearly insatiable demand
— industrial junk.
Sales of scrap metal to China have surged, with effects that are
ricocheting across the American economy. Prices are soaring not
just for scrap, but for metals in general. After years of surpluses
that forced many steel makers into bankruptcy, supplies are so tight
that contractors told a Congressional hearing in Washington this
week that they sometimes cannot obtain supplies at any price.
China last year became the first country ever to import more than
$1 billion of American scrap, according to the newspaper American
Metal Market. Indeed, it would not be an exaggeration to say that
China's transformation into an industrial powerhouse is being fueled
by America's waste, and that of other countries, as well. Much of
the material being used to build China's skyscrapers, factories
and telecommunications systems — along with many of the products
it exports — is derived from scrap, which is usually cheaper
than new metal made from ore.
"China is very hungry," said David Pan, a Chinese-born
scrap metal buyer, as a truck carrying steel reinforcing bars from
a dismantled building in San Diego prepared to dump its cargo with
a deafening clatter on the floor of his warehouse in Maywood, an
industrial town just south of here. "They need a lot of material."
A decade ago, Mr. Pan was working in a Los Angeles restaurant when
relatives back in China asked him to start buying scrap. Now, as
China booms, so does Mr. Pan's business, called Universal Scrap
Metals. He ships about 500 containers a month to China filled with
battered pipes, fine metal shavings, doorknobs, jumbles of wire,
crumpled cars and all other manner of flotsam. He is even negotiating
to buy the remains of a steel factory in Utah; he would ship it,
as scrap, to his native country.
American scrap dealers, an industry of 1,200 or so mainly mom-and-pop
operations, are sharing in the boom times.
"They're scrounging every yard in the country, like a vacuum
cleaner," Ely Keenberg, president of Ekco Metals, a Los Angeles
scrap dealer, said of purchasers from China. At one point during
an interview, Mr. Keenberg's receptionist interrupted to show him
the business card of a man from Hong Kong who had just made a cold
call looking for scrap. "If we allowed it, we'd have one in
here every five minutes," said Mr. Keenberg, who sells 90 percent
of his scrap to Chinese buyers.
American companies that depend on scrap are, in the meantime, scrounging.
"We're having greater and greater difficulty in securing scrap,"
said M. Brian O'Shaughnessy, chief executive and principal owner
of Revere Copper Products in Rome, N.Y., a company founded by Paul
Revere that turns copper scrap into sheets and strips. "It's
causing the price of scrap to go through the ceiling."
Both copper and steel industry trade groups are drawing up petitions
that would ask the government to temporarily limit scrap exports
— an authority that Washington has used only once, in the
mid-1970s.
The price of scrap steel has soared to more than $300 a ton, compared
with about $156 a ton at the end of 2003 and $77 at the beginning
of 2001, according to the Emergency Steel Scrap Coalition, a group
backed by steel users and minimills, which use scrap to make about
half of the nation's steel. Many minimills have imposed surcharges
to pass the higher costs onto customers like automobile and construction
companies, with some of them resisting.
"Scrap is the overwhelming factor determining steel prices
at this point," said Christopher Plummer, managing director
of Metal Strategies, a consulting firm in West Chester, Pa.
Rising exports are clearly one factor behind the high prices, but
the extent to which they can be blamed is debated. Over all, exports
of steel scrap have almost doubled since 2000 to 11.9 million tons
last year, close to a record. China was the largest importer, accounting
for 3.5 million tons, or about 30 percent, of the exports.
But scrap dealers argue that exports are still small compared with
domestic consumption of about 70 million tons a year, and so could
not account for the huge price increases. Moreover, they note, there
have been several occasions in the last two decades when total scrap
exports reached or even exceeded last year's levels.
"What is happening now is not unique," said Robin Wiener,
president of the Institute of Scrap Recycling Industries, the dealers'
trade group. Attempts to restrict scrap exports, she said, are "just
clearly a smoke screen attempt to control the price of scrap"
and would be a "distortion of free trade."
Some experts add that in any event, China's building boom has the
look of a bubble and cannot last indefinitely. Indeed, China's State
Development and Reform Commission just announced that after fixed
investment in steel mills rose 90 percent last year, it would stop
approving virtually all applications to build mills. Still, with
many mills approaching completion, one Chinese trade group forecasts
that imports of scrap will nearly double by 2005 over last year's
levels. |
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