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PDecember 27, 2010

Steel Déjà Vu

I received some industry information from Butler/BlueScope Purchasing alerting us that steel price increases might be forthcoming early in 2011 based on the increases announced by the major steel producers in recent weeks. This should be déjà vu for most of us knowing what transpired a year prior as demand inched up ever so slightly.

To my knowledge, Butler is not planning to formally announce a price increase in the near future, but this could change depending on what happens in the market place moving forward. The good news for us is that BlueScope is vertically integrated along with being the largest PEMB company in the world so this will provide them with greater leverage when negotiating future raw material costs.

As reported in the Central Chronicle on December 20, 2010:

Steel is likely to get costlier after the New Year, with major steel-makers indicating another price hike from January due to surging raw materials.

“Steel prices are likely to move upwards further due to increasing coal and iron ore prices. It seems there will be a severe cost pressure on steel mills, which will lead to a price hike in January,” JSW Steel’s Vice-President (Sales and Marketing) Sharad Mahendra said here.

“It is very difficult to say the exact hike (on amount basis) that would happen in January, but in terms of percentage it could be between three to five (per cent) per tonne,” he said, adding both coal and iron ore prices were expected to rise in future.

And Steel Market Intelligence reported this month that there is volatility in the steel marketplace currently:

We have seen a bevy of domestic steel price hikes this week, most notably for sheet products where the major players all raised prices $30-50/ton on Monday; these increases were quickly followed by Nucor with a second increase of $40/ton, which we believe will be followed by Nucor’s peers in coming days. These increases are coming off of what we think is a relatively small pickup in real demand – based on a combination of fear of further price hikes due to surging raw materials, seasonal factors, and near-record-low domestic prices relative to global levels. It’s the smoke that keeps driving these surges – again – not even fire.

This is the New Normal. The net result of a combination of bare-bones inventories with these occasional demand upticks is likely to bring us to a permanent new normal of oscillating steel prices in cycles far shorter than what we’ve seen in the past. This means more volatility.


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