Steel prices in the U.S. continue to soar due to higher material costs, but prices outside the U.S. are spiraling even higher, slowing the flow of low-cost import steel to the domestic market.

In the most recent Purchasing poll, 82% of steel buyers polled in March reported paying higher prices for steel in the U.S. and the worst is not over. Market mavens say buyers will have to pay higher steel prices at least through June—especially since low-priced foreign steel imports have all but dried up.

"Steel prices outside the U.S. are much higher than in the U.S., despite the recent large increase in domestic prices," says analyst Charles Bradford at Bradford Research/Soleil Securities in New York. "Thus, imports are plummeting, down 9.6% in January compared to a year ago, and exports rose by more than 30%." So, if the domestic mills achieve the announced $800/ton price for hot-rolled sheet for May deliveries, transaction prices for this benchmark flat-rolled steel will have increased by 57.5% from the latest cyclical low of $508 last August.

Metals service centers already are forecasting that OEM buyers could see prices of $860–$880/ton this summer for a delivered ton of hot-rolled sheet steel, pickled and oiled and then cut into sheets. "[Higher] U.S. pricing momentum continues to be driven by subdued import activity, low service-center inventory levels and impacts from global consolidation activity," writes analyst Mark Parr at KeyBanc Capital Markets in Cleveland in a recent market update. "U.S. pricing momentum also is in line with global market movements."

Currently, sheet and plate prices already are 20% higher than late last summer, the low-price point of the previous cycle. The latest steel pricing information from Purchasingdata.com shows hot-rolled sheet in coil sold for an average $665/ton in February, up 22% from $544 in December; cold-rolled sheet in coil inflated 21% to $752 from $624 and hot-dipped galvanized escalated 13% to $773 from $684. Electrogalvanized sheet in coil at $807 in February was inflated 23% from $658 in December. Meanwhile, hot-rolled plate in coil jumped 13.5% to $798 from $703, while cut plate at $841 was 8.5% higher than $776 in December.

Bradford also sides with gripes from steel buyers about the current unprecedented steel price run-up by noting that by May domestic sheet prices will have increased by $250–$300 while scrap costs look to be up by only about $100/ton.

The U.S. scrap market, the largest in the world in terms of scrap generation, has been plagued recently by reduced availability of material—and future pricing is uncertain. There are several reasons. First, there is less scrap available to the market as steelmakers try to build sufficient in-house material to get a handle on their raw material costs. Second, there is less so-called "obsolete scrap" available in the domestic market as stockpiles of the easily accessible material have been drawn down after four years of record-high prices. And, third, increased demand from overseas mills—estimated to have increased 25% last year—has driven U.S. scrap exports to record levels, leaving less available to the domestic mills and foundries.

Still, "the steel mills continue to raise prices now even though economic indicators signal otherwise," says one buyer in the latest survey. And Bradford agrees: "It is quite clear that steel consumption in the U.S. will decrease in 2008, with no markets showing strength except energy." Overall, manufacturers expect the economy to slow significantly in 2008 to 1.1% growth, the slowest pace since 2001. They still think a recession will be averted, according to the National Association of Manufacturers (NAM).

"Net exports will keep the U.S. economy out of recession in 2008," NAM says in its outlook for the U.S. economy and manufacturing. Analysts generally agree this will translate into a steel market where apparent consumption may fall even deeper than the 10% drop of 2007.

Dave Phelps, president of the American Institute for International Steel in Washington, said in a recent report that "the steel market is difficult to understand in early 2008." He writes to AIIS members that "the domestic industry has continued to increase its prices in rapid-fire fashion even though the signs are unmistakable that the economy is in trouble and more and more economists foresee the country falling into a recession."

Phelps went on to say that with three mills controlling 70% of flat-rolled and some long products in the U.S., they have the ability to manage supply and keep prices up. But there are major disagreements among analysts and buyers whether market demand is strong enough to support all of the sheet price increases being proposed by Nucor, ArcelorMittal and U.S. Steel—and followed-on by AK Steel and Steel Dynamics.

Demand for steel varies by sector, but Bradford says end-customer inventories of steel are low and there is no rush to fill steel mill order books. Purchasing's March survey of buyers found only 29% planning to increase their steel buying plans, the third-lowest response in the past 15 months.

NAM forecasts that the manufacturing sector will slightly outpace the overall economy and grow by 1.5% in 2008 after a 1.7% growth in 2007. But that's mostly because the weak dollar will boost such export-oriented industries as aerospace, machinery and medical equipment. Some steelmakers suggest this proves that steel deliveries in 2008 actually could increase in a recessionary year, which never has happened before.