Steel Prices Rise -- Again

Dec. 21, 2004
Increasing demand, a weaker dollar and higher input costs mean consumers will pay more.

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.

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