Flat-rolled steel price take off is far from over

By Tom Stundza -- Purchasing, 4/2/2008 10:02:00 AM

Steel price assessments increased considerably in March and mills ended the month by boosting announced prices even higher for the deliveries through June. With service centers and small-to-medium-tonnage buyers accepting most of the increases, Purchasingdata.com has revised and increased second-quarter price forecasts.

In turn, even with an expected slippage in the fourth quarter, steel buyers will face full-year price inflation of 21% for the market basket of 11 carbon steel grades tracked by Purchasingdata.com. The benchmark grade of hot-rolled sheet in coil (HRC) increased by 24% in the first quarter to $661/ton and now is projected to rise another 29% in the second quarter to $850. Similarly, Purchasingdata.com projects an annual average increase of 48% to $778 for HRC in 2008 from the 2007 average price of $527. The annual average price of $862 for cold-rolled sheet in coil (CRC) is 40% to $862 from $614 in 2007.

Aldo Mazzaferro, steel analyst at Goldman Sachs Group in New York, recently boosted his 2008 price outlook for HRC to $775, citing “tighter-than-expected global markets (which) appear to reflect a physical steel shortage.” His commentary to clients confirms what other analysts are saying, that global markets are setting new highs in pricing because of strong demand from emerging markets in the Middle East, Russia, Brazil and Asia.

He also points out that exports from traditional suppliers are declining instead of increasing, as had been expected. “There is internal demand strength in export-oriented countries,” he says, noting that one of them, India, recently has become a net importer. “We think exporting nations like Brazil, Russia, China and others would be increasing exports in this time of record pricing and demand if they could,” writes Mazzaferro. “Instead, exports from most are off.” China is slowing exports because of government initiatives to reduce production and improve air quality in advance of the 2008 Summer Olympics.

And there now are numerous reports of stronger-than-expected internal steel consumption in Brazil, Russia, India and China, the so-called BRIC bloc of nations undergoing an explosion in infrastructure construction. As for supply, Mazzaferro writes: “Some steelmaking capacity is in the planning stages, but if demand growth rates continue in the 5% range globally we expect continued tight markets for the next several years, and do not see longer-term planned capacity additions.