The steel bubble will burst
Doug Smock, Editor-in-Chief -- Purchasing, 3/4/2004 2:00:00 AM
If you're a steel buyer, you know that prices are absolutely insane right now. If you buy products made from steel, like steel drums, brace yourself, you're in for a rude shock. Steel prices have been rising faster in the last few weeks than at any time since 1972. There are even rumors some types of steel may not be available in April.
According to www.purchasingdata.com, prices for cold-rolled sheet rose from $390 in December to $420 in January (including a materials' surcharge) and $480 in February. Tom Stundza's Steel Flash Report projects prices will be $565 in March, with plenty of upward potential. That's close to a 50% surge. How are your standard cost forecasts looking? Bonus a little shaky?
Causes include reductions in domestic steel-making capacity, a sagging dollar, a catastrophic fire at a coking mine in West Virginia, China's buying binge for finished and scrap steel, and an imbalance in the trans-Pacific trade routes that has resulted in high shipping rates.
Tom presents an analysis of the situation starting on page 13 of this issue. "For the first time in three decades, steel is selling priced at time of delivery," writes Tom. In other words, if you want to keep your plants running, you pay the price. Forecasting? Forget about it.
Tom and I both started covering steel markets back in the 1970s: Tom at the Gary, Ind., Post-Tribune and me at the PittsburghPost-Gazette. Tom joined PURCHASING in 1983, and has established our steel price trends as the benchmark in the business.
You can see Tom's steel prices through a subscription to www.purchasingdata.com. Additionally, you can get access to Tom's analysis and pricing data through a subscription to the Steel Flash Report also sold at purchasingdata.com. The February issue, now available, projects for the first time Tom's calls on steel prices (including surcharges) for the months of March and April. It's the best possible way to protect your flanks. It's too late to hedge on inventory, but you can at least make sure you're ahead of the market and give your boss a head's up.
And Tom won't be afraid to make the next really tough call: Is this a bubble and when will it burst? There is still excess steelmaking capacity in the United States and globally. Aren't we just emerging from a glut? Business is good, but it's sure not super-charged. Mills can't ramp up that capacity now because of materials' shortages. Once China cools and coking capacity is more normal, I think this bubble will burst. Maybe with a vengeance.
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