Steel prices for 2006 are forecast to be between $500 and $550 a ton, according to a Troy, Mich.-based Roland Berger Strategy Consultants.
"We don't expect a return to pre-2004 prices for at least the next three years," says Wim van Acker, manager partner, Roland Berger Strategy Consultants.
One of the key reasons for the recent spikes is China's increased consumption of steel. In 2005, China accounted for 30% of the global demand making it the largest consumer of steel in the world.
Industry consolidation is also a factor. In 2002, seven steel companies controlled approximately 53% of the U.S. market and there was substantial overcapacity but by 2006, three companies -- Mittal, U.S. Steel and Nucor - controlled a combined 55% of the U.S. market.
"The proposed acquisition of Arcelor by Mittal will have a minimal impact in the U.S., but will further increase consolidation globally," says Antonio Benecchi, partner, Roland Berger Strategy Consultants.
Looking forward, the consulting firm predicts that demand for steel in construction is expected to remain high in 2006 and automotive steel consumption, led by sport-utility vehicles will continue to rise as well. Transplant automobile manufacturers also are contributing to rising demand, with an expectation that they will increase domestic vehicle production 12% between 2005 and 2007.
"Today, steel companies have gone from being price takers in a competitive market to price setters with their customers," Benecchi notes.