Steel pricing outlook: down

Staff -- Purchasing, 2/3/2005

With demand for steel growing in most every region of the world for the first time in over a decade, that's boosted world steel consumption and created strong steel demand both globally and in the U.S.

As we look out into 2005, the growth is continuing, even though China is reducing its growth rates and restrictive lending policies and interest-rate hikes have emerged. But, says economist John Anton at Global Insight's Washington office, high crude-oil prices are causing lower growth-rate expectations for 2005. That's why some product prices are declining in the U.S., although they are still above historical norms.

Working with executive editor Tom Stundza, Anton has created new steel-price indices using PURCHASING magazine's exclusive monthly steel product price data (available at www.purchasingdata.com). The goal is to use these charts, and accompanying commentary by Anton, quarterly in the magazine to show where prices are—and where they may be going.

It is typical of a turning point, where prices of some products decline, while others rise. By the first quarter of 2005, the decline will be almost universal, he says. Scrap prices have eased slightly, but are still extremely high. Prices were higher in the United States than in the rest of the world for much of the second half of 2004, but now they are higher in Western Europe and East Asia. Differentials should close rapidly as import/export flows send steel to the countries with the highest profit potential.

"The future of the steel industry will see higher prices than those in the past six years," says Anton. "It took one year (2004) for prices to double. It will take two years for prices to decline fully—and they will bottom-out well above where they started." The forecast assumes that China will continue to grow strong, but at a lower rate than in recent years.