The Price of Steel, Worldwide Challenge for Business and Consumers

Steel Prices Rise -- Again

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 prices soar in the UAE
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.

China's Need for Metal Keeps U.S. Scrap Dealers Scrounging
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.