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Tom Stundza, Executive Editor -- Purchasing, 1/15/2004 2:00:00 AM
Wondering why steel mill prices are rising? Alan Greenspan sure isn't: One of his favorite economic indicators, the steel scrap price, is surging. "Every day, as a private sector economist and as chairman of the Federal Reserve Board, I still look for the price of No. 1 heavy melt steel scrap," Greenspan says. Reason: The price of scrap steel has worked well historically as an indicator of where the industrial economy—and steel prices—are heading. Midwest No.1 heavy melt has shot up more than 60% in the past year, mostly since October, and closed December around $165/gross ton. The significant scrap hikes have been driven by two factors: (1) increased U.S. demand from mini-mill and integrated capacity restarts, and (2) a surge in exports driven by a weaker dollar and rising steel production in China and other emerging market economies. "Scrap has always been a good indicator, because it feeds directly into capital spending," agrees Don Fine, president of Fine Financial Forecasting. "If scrap steel is rising sharply, it's a good indication that things overall are picking up. It's an old, trusted standby and it should not be ignored." Steelmakers are trying to get a 25-30% increase in steel sheet prices to pass on rising rawmaterials costs.
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