Business Day - Steel prices set to forge to record levels again this year
Business Day 6-12-2006 – Carli Lourens
| GLOBAL steel prices could be heading back up to the record levels seen in the past two years, boding well for local steel makers Mittal Steel SA and Highveld Steel & Vanadium — but not for end-users. |
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International steel prices in the year to date have been rising almost as steeply as they fell last year.
Industry research firm MEPS expects steel prices to increase 30% in Europe this year and 15% in Asia in dollar terms.
The consultancy says fourth-quarter steel prices could rise to levels similar to those reached in 2004.
Mittal Steel SA, which is raising average prices on the bulk of its steel products by about 5% next month, says global hot rolled coil prices increased about 20% in the year to date and more than 30% in some markets.
ThyssenKrupp, Arcelor, Corus and Salzgitter are all looking to hike steel prices next month.
Increases in raw material prices are among the factors behind climbing steel prices. Annual iron-ore contract prices for several European, South Korean and Japanese steel mills have increased about 19% compared with last year. Chinese mills are still negotiating new iron-ore contracts.
Global prices of zinc, which is used to galvanise certain steel products, jumped 70% in the first quarter compared with the same quarter last year.
Global demand for steel is widely expected to remain healthy throughout the year, providing further support for strong steel prices. Demand in SA is expected to be particularly strong amid rising government infrastructure spending, among other things.
There is concern that the rise in steel prices may intensify as buyers build stockpiles to hedge against future steel price hikes.
Online publication iSteelAsia said recently it had become clear that stock-building was taking place in some markets, raising the possibility of a speculative bubble that could bring problems later.
MEPS says steel makers around the world are exercising a degree of control in output in an effort to put a floor under the price decreases witnessed last year, when customers embarked on a period of inventory reduction after the excesses of 2004.
In many countries this action has stimulated prices and in a number of cases has revived demand on the mills, it says.
Merrill Lynch said last week that prices in Europe, Asia and the Commonwealth of Independent States continued their upward trend of the past few months.
MEPS said in an international steel market round-up last week that US flat steel buyers had accepted further price increases, driven by a lack of supply.
Meanwhile, steel output is expected to continue rising. MEPS estimates world crude steel output this year will be 1,176-billion tons, a 4,15% increase over the previous year’s production. The majority of the steel output increase is expected to come from China and India.
Mittal Steel SA’s share price has remained strong amid rising global steel prices in the year to date. This is despite the company reporting a 57% fall in headline earnings in the quarter ending March compared with the same quarter last year.
The share traded at R62 at the beginning of the year, closing at the same level on Friday.
Mittal Steel SA is shielded from the bulk of raw material cost increases thanks to its local iron-ore supply arrangement with Kumba.
Highveld’s share price has fallen from about R85 to R72, mainly due to a decline in vanadium prices.
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