Some sheet-steel prices to rise
Price hikes appear possible even at low steelmaking rates
Tom Stundza -- Purchasing, 7/1/2009 2:27:46 PM
Steel prices in the U.S. slipped 3.1% in June, the 11th
straight monthly decline, but analysts say some prices could go up. Steelmakers
have announced substantial price hikes for July--and IHS Global Insight
forecasts a third quarter price average of $467/ton, as compared with $397 in
the second quarter. The Steel Market
Update newsletter today posts $435 as the expected July price but admits the
mills will have to "continue their negotiations with those who have been
resisting paying the last round of increases."
Purchasing's latest Steel Flash Report has a $417 price average for the third quarter and doesn't project full acceptance because of slack buying in summer. (The flash report and steel price history can be found at www.purchasingdata.com, Purchasing's subscription website for commodities prices, leadtimes and business conditions.)
Steel analyst Mike Gambardella at J.P. Morgan Securities today agrees that "the magnitude of steel price hikes will remain muted for the second half of 2009," even though he expects steelmakers to gradually move pricing higher in coming months. Even if they do, the market pricing will remain substantially below prices in previous quarters.
The analyst forecasts that "steel consumption has likely reached a trough for the cycle and should start to recover gradually (albeit from very low levels) in the second half and then more forcefully improve as we head through 2009 and 2010."
He doesn't forecast actual consumption tonnage in 2009-2010 and cautions in a note to clients that "substantial industry headwinds remain in place over the medium term, including a structural downshift in normalized demand and the potential for overcapacity." Because of that, "capacity utilization rates should remain depressed, but on an upward trend in the second half" from the 43.7% level of the first half. The industry only made 26.5 million tons through June 27, a 51.8% decrease from the 54.9 million tons poured during the first six months of last year, when the capability utilization rate was 90.5%.
Gambardella forecasts capacity utilization of "around 75%" in 2010 since the steel market will need some time to recover from the 2008-2009 recession. That's why he pins projections of price increases ahead on lean inventories at the distribution level and a continued focus on production discipline by the mills. "As de-stocking comes to an end, followed by a recovery in end market demand, steelmakers will be capable of passing along modest price hikes to help bring their average revenue per ton above break even," he writes.
One of his suppositions is that the larger steel mills may prefer to run at relatively low utilization rates to keep supply matched with demand in order to improve the odds for raising steel prices higher. "Historically, it appears that true pricing power does not swing to the steel mills until utilization rates are near 75% to 80%," he writes, "but we believe larger mills, if capable of keeping excess capacity off line, will manage to set the stage for price hikes."
See also: ArcelorMittal tries to elevate sheet-steel prices.
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