The fourth quarter of the calendar year is the time in which the steel market has historically exhibited some of its most “unusual” behavior. It appears that this year will be no exception.
To briefly review, 2010 provided us with a dramatic run up in steel prices through the first six months, followed by slight moderation over the summer and early fall. Now, as the leaves have fallen from the trees (depending on where you are) the domestic steel producers are ramping up to raise prices as we move in to the New Year.
Despite the weak conditions that persist in the non-residential construction market, other steel consuming segments of the US economy are somewhat more active. Automotive, energy, heavy equipment (for export) and service center are all reporting some level of improvement. With relatively lean inventories constrained by tight working capital, these manufacturers are beginning to place replenishment orders. This uptick in demand, coupled with lower production levels at the nation’s steel mills has resulted in perceived “tightness” going into the first quarter of 2011.
As a result of this shifting supply/demand equation moving into January, US producers have announced several base price increases over the past month, totaling in excess of $90 per ton. In addition they have announced new, higher, “extras” for galvanized sheet (used in Ultra-Span and all cold formed framing) due to rising zinc prices. More price increase announcements are likely on the horizon and lead times are well into January.
Whether next year will display a similar pricing profile to 2010 of course remains to be seen. Although overall economic activity seems to be improving, it is probably too early to break out the champagne and party hats.
One thing is for certain: if factors such as improving demand, higher iron ore and scrap prices and little or no imported steel continue to persist, steel mills will aggressively raise prices. As Spanish philosopher George Santayana famously quipped, “Those who do not learn from history are doomed to repeat it.”