Wall Street sees huge 22.5% steel sheet price hikes in 2008

Buyers don’t agree that the mills will got what they want this year

By Tom Stundza -- Purchasing, 1/30/2008 9:31:00 AM

U.S. steel prices are set to rise significantly in 2008, according to several Wall Street analysts who see a cost-push inflationary environment outweighing a collapsed-demand deflationary scenario. Aldo Mazzaferro at Goldman Sachs Group has raised his 2008 price forecast for hot-rolled sheet in coil (HRC) to $650/ton, up from an earlier $580 outlook. Timna Tanners at UBS Securities has posted to clients an annual-price outlook of $644 for HRC, saying that “a supply-side price push is materializing more quickly than expected.”

The 2007 price HRC average was $527/ton when apparent supply dropped by 10%--and new calculations show that actual net use was down 15% to 94.2 million tons. With a 5% decline in apparent supply projected for 2008, and the metalworking economy skirting a depression, early forecasts for 2008 HRC ranged from $550 to $580 to account for some cost increases. The majority of the buyers polled early this month agreed that some sheet steel pricing increases were likely.

However, in less than a month, the mood on Wall Street has changed. In a nutshell (and speaking for the majority of steel analysts), Michael Willemse, the industrial products research analyst at CIBC World Markets, expects “a sharp first quarter rise in North American flat-rolled prices and strong shipments from most steel producers due to increased buying by service centers, benign imports, and increased export opportunities.” He says “these factors will offset weak end-market demand in North America” and allow the mills to get $660-$680 prices for March deliveries.

Of course, not everyone agrees. John Anton at Global Insight still sees the 2008 price average for CRC below the new $644-$650 projections. “I am looking at announced price increases, and trying to reconcile them with a soft demand outlook,” he says. “Other than inventory restocking (by service centers), demand for 2008 already looks weak, and the risk is all on the downside.”  

Anton acknowledges in an e-mail to Purchasing.com that “costs of production are certainly higher, and mills desire to pass this along; but there is only so much the market can bear, and I fear we may find the breaking point.”

Also, an informal survey of some end-used buyers this week found many major metalworking operations not paying substantially more in January—where the average HRC transaction price was $579—and fighting with their suppliers over the announced additional first quarter price increases. Anton agrees that OEM buyers will pay “modest increases” in the first half of 2008, “but not as strong as already announced increases.”

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