Steel demand in the U.S. softened last year, evidenced by low shipments, shrunken inventories and reduced imports. The weak dollar and high freight prices could keep steel imports depressed in 2008, traders suggest. And buyers don't seem to be too concerned, mostly because they have few plans to boost imports until prices are more favorable and shipping costs deflate.

With end-use buyers keeping an eye on in-plant inventories and service centers working to reduce their stockpiles, "things were downright tough for importers in the second half of 2007," says David Phelps, president of the American Institute for International Steel in McLean, Va. "Surging ocean freight rates and the weakening dollar, will continue to squeeze the ability of importers to bring steel into the U.S. market this year," he adds.

"The late-2007 decline in finished-steel imports shows that higher prices in many other international markets, along with record high ocean freight rates, leaves the U.S. market a challenging market to import steel from areas outside Canada and Mexico at this time," says Phelps.

Michael Willemse, research analyst at CIBC World Markets in Toronto, agrees there will continue to be "lower import opportunities" in North America for a while.

"Recent increases in foreign steel prices and the recent weakness in the U.S. dollar suggest that steel import activity into North America will likely remain depressed over the next 12 to18 months," he writes to clients. He adds that "the higher global steel prices have resulted in a significant decline in the spread between U.S. and foreign prices, which also has resulted in a decline in net imports of steel products into the U.S.—and throughout North America."

Monthly U.S. carbon steel imports averaged 5,769,000 tons in January-October 2007 vs. 7,769,000 tons over the same period in 2006, a 26% decline. Buyers polled throughout the second half of 2007 reported limited import activity due to a lack of need, elevated shipping costs and strong offshore market demand. They also were far less interested than they had been earlier in the year in sourcing offshore because the weaker dollar boosted steel prices from foreign mills.

Projected import totals for 2007 will be between 32 million and 34 million tons, which will be substantially lower than the 45.3 million tons shipped here in 2006. Looking ahead, Phelps suggests that "total steel imports will be about flat this year" because overall demand will be "stagnant" at about the same tonnage as last year and the weak dollar will continue to make foreign-made steel pricey for domestic buyers and freight rates will continue to be high because of energy costs and capacity issues.

Eliminating too much inventory in 2007 stretched out well into the third quarter. U.S. market prices flagged in the face of this inventory correction, but demand and prices surged in such other markets as the European Union, Russia, Eastern Europe, Latin America, parts of Asia and the Middle East. "The unusual pricing structure meant that U.S. prices were not, as they usually are, the highest in the world," says Phelps. "With surging ocean freight rates, the weakening dollar, importing became more and more difficult as the year wore on."

Phelps believes that the U.S. steel market "appears to be in yet another transition" in early 2008. Entering 2008, historically low inventories at service centers, a decrease in production at U.S. mills and reduced stocks at original equipment manufacturers (OEMs) could generate more mill-favorable pricing and an improvement in import order taking—if the market improves. In fact, domestic mills have been increasing list prices for first-quarter deliveries.

Willemse sees an increase in overall steel prices over the next few quarters "as North American steel producers gain greater pricing power due to limited import offerings and a moderate increase in demand from steel buyers who will likely need to begin restocking inventories."

Analysts note that prices from offshore mill could be a mess this year. European steelmakers, for example, are choking on inventory just now and are facing such headwinds as rising raw material costs and moderating demand growth. Asian demand trends are uncertain.

And, according to Chicago-based independent analyst Michelle Applebaum, "a combination of strong demand in China plus maintenance outages is driving prices higher in the domestic market there making it unattractive for Chinese steelmakers to ship products overseas." She adds that high freight rates and changes to the country's export tax regime are exacerbating the export problem.

In this swirling trade environment, many U.S. and Canadian end-use and service center buyers polled in December project no tsunami in foreign-steel purchasing. Also note that these buyers generally disagree with some other analysts who believe the 2008 U.S. steel market is about to swing into a boom-demand, tight-supply scenario.

Even Phelps reckons that this year will be a tale of two steel markets: "There will be an improving market in the first half because inventories have to be restocked; and, since prices in Europe and elsewhere overseas are declining because of excess supply, there will be more opportunities for import ordering," he says. "But, the outlook for the U.S. steel market in the second half is less certain—and could weaken if housing crisis snowballs and depresses consumer spending further on such items as cars, trucks, white goods and various durable goods."

That could stifle second-half importation of key steel mill products. And that wouldn't make people like William Gaskin very happy. The president of the Precision Metalforming Association in Washington says the recent decline in imports of hot-rolled steel sheet, the product used most frequently by metalworking companies, already confirms there are "increasingly tight market conditions (being) faced by U.S. manufacturers who use raw steel to make finished products."

Gaskin is lobbying Washington policymakers "to avoid acting overzealously and placing more restrictions on steel imports than are already in place." Of course, the American Iron and Steel Institute in Washington would like to see lower imports and tariffs on those that do pass Customs so that domestic producers can tighten supply across several product lines and, thus, boost prices.