News Room - Steel Industry

Posted on 02 Jan 2008

New year may bring increased steel costs

The new year might usher in higher steel prices as global supplies tighten and overseas demand remains strong, which could pinch consumers.

Steel is the main ingredient for a plethora of manufacturers, from automakers to washing-machine companies. Increased steel costs can translate into higher prices for manufacturing companies and, ultimately, consumers.

AK Steel Corp., based in Ohio, recently said it would add a $230-per-ton surcharge to electrical steel product orders shipped in January.

The steel producer said the surcharge was based on raw material prices and the cost of energy used to make its products.

Most of the major U.S. steel mills announced price increases that went into effect last fall. Some of the increases were only about 3 percent, but it was the first time that prices had gone up in a while.

Currently, some steel suppliers are limiting price quotes to about three months.

They aren't sure what the prices will be after that, according to area companies that buy large amounts of steel.

"That's the biggest wild card for manufacturers in 2008. People just don't know what steel prices are going to do," said Glen Tellock, president and CEO of Manitowoc Co. and chairman of the Association of Equipment Manufacturers, a trade group based in Milwaukee.

Emerging industrial countries, such as China and India, have complicated global steel markets and have made them harder to predict.

"The people who are going to do the best are the ones who can react to the changes the fastest," Tellock added.

Lehman Brothers analysts have said strong worldwide demand for iron ore, which is used to make steel, will drive steel-making costs up as much as 25 percent in 2008. The mills are expected to pass on higher raw material costs by raising their prices for finished products.

Last week, Moody's Investors Service said strong global demand for steel has supported prices in every region around the world, with China consuming tremendous amounts of material as well as producing it.

"Demand in the U.S. has also remained solid, despite weakness in the appliance and automotive markets," Moody's analyst Carol Cowan wrote in a note to clients.

Under pressure from the United States and Europe, China recently said it would place export tariffs on more steel products, effective Jan. 1.

China's recent decision to place an export tax on raw steel, while welcomed by U.S. steel producers, sent a chilling message to U.S. manufacturers that rely on at least some imported raw material.

A continuing decline in steel imports is worrisome, according to the Precision Metalforming Association, a Cleveland-based trade group.

For the first 11 months of 2007, imports of hot-rolled steel, the product used most frequently by metalforming companies, were down almost 50 percent compared with the same period in 2006, according to the association.

A combination of forces, including fewer imports, could push steel prices higher in 2008.

That threatens to harm U.S. manufacturers competing with companies in low-cost Asian countries, said Bill Gaskin, the association's president.

Some material prices have remained stubbornly high even without price increases, according to local manufacturers.

"The price of chrome has skyrocketed. When we have to chrome-plate our parts, the costs are way up there," said Ron Loos, president of Quality Tool & Die.