Steel: Bad News and Good News

January 6th, 2009 at 04:14pm Bob Trojan

In an early sign that some steel prices may have bottomed out, steelmakers in the U.S., China and some other countries are attempting limited price increases and reopening a handful of mills that were closed because of weak demand a few months ago.

It isn’t clear whether the price increases will stick, however. Steel sellers often announce price increases or special surcharges, only to relent in the face of customer opposition or if rivals don’t follow suit. Nor is it clear whether the price increases reflect more demand or lower inventories.

Troubled auto makers, contractors, appliance and equipment makers have cut back on their steel purchases. The majority of mills closed over the last few months remain shuttered and many around the world are operating below 50% of their capacity.

But steelmakers signaled cautious optimism that there is enough demand to support price increases in some parts of the world. Pittsburgh-based Allegheny Technologies Inc. said it would increase its surcharges on electrical steel by 55% beginning in February to $321 a short ton. (A short ton is about 0.9 metric ton.) Surcharges are tacked on to base prices, typically to account for raw-material costs, and can change monthly.

AK Steel Holding Corp., based in West Chester, Ohio, said it is raising the surcharge on February shipments of electrical steel to $165 a short ton from $10 a short ton. The percentage can’t be calculated because the company doesn’t reveal its base prices.

ArcelorMittal, the world’s largest steelmaker by output, said it will reopen its wire rod mill in Georgetown, S.C., next Tuesday. The Luxembourg-based company on December 5 shut down much of the mill, laying off 300 workers, citing slack demand and low prices.

In China, several steel mills have announced price increases ranging from 5% to 25% for a variety of products. Baosteel Group Co. and Anshan Iron & Steel Group Corp. said that they will raise their prices for hot-rolled coil steel, a basic product that is processed into many steel applications. Baosteel also said it will increase production at some of its mills.

Japanese steel-industry executives said Tuesday they expect the steel market to start recovering around midyear as inventories decline and steelmakers reduce output.

Steel is a bellwether industry for the world economy. The proposed price increases and isolated plant openings indicate that parts of the global industrial base might be less anemic than they were.

Steel analysts, noting that the market remains generally weak, said the proposed price increases may reflect decreased inventories rather than stronger demand. “Steel demand will likely remain weak in 2009,” according to Moody’s Investors Service. “We expect that the rate of downward movement will slow and that a level of stabilization should occur in the second half.”

Source: WSJ

Entry Filed under: Economy