World steel demand could drop

Steel prices are getting too high, analysts say

by Paul E. Teague -- Purchasing, 6/4/2008 12:25:00 PM

What a difference a couple of months makes. In March, Ian Christmas, secretary-general of the International Institute of Iron and Steel (IISI), told Reuters that there was no sign that the strong global demand for steel that had been driving up prices would slow down any time soon. But this week, Bloomberg reported that the vice chairman of IISI, Paolo Rocca, said world demand would slow down in another three years (http://www.bloomberg.com/apps/news?pid=newsarchive&sid=adBrOsc4SUKs).

The reason: high prices for iron ore and other raw materials. He could have added scrap prices to the list. Domestic steel scrap is setting record highs in price, partly because high export prices are leaving little scrap for the U. S. market.

The high raw-materials costs are one of the factors pushing up the price of steel. But some analysts say mills have overcompensated, forcing unwarranted price hikes. Market analysts such as John Anton of Global Insight and Michael Willemse of CIBC Capital Markets says the resulting high steel prices are not sustainable, and predictions of an eventual drop in demand would seem to back up that assertion.

Meanwhile, sustainable or not, all steel grades tracked by purchasingdata.com increased by an average of 14% between April and May.