Construction steel prices jumped 6% for reinforcing bars, 10% for plate and 22% for structural beams over the last nine months. This was caused by an unusual convergence of soaring user demand in China, the end of the steel tariffs, higher mill costs in the U.S. for steel scrap and natural gas, and panic ordering of extra stocks that doubled normal lead times as buyers realized that a strong economic recovery was beginning. Scrap steel prices surged nearly 50% because of competition for supplies with Chinese mills. This boosted the final product cost of scrap-using mini mills in the U.S. by a whopping 15%.
Price raises overshot the market equilibrium early this year and will be erratic, possibly slightly lower, for a few months. But as the reduction of security inventories is offset by rising U.S. demand from contractors and manufacturers, prices will stay about at the current level through next year.
The end of steel tariffs, mill shutdowns, the beginning of a rebound for manufacturing, nonresidential, and heavy construction, and slower dollar depreciation all happened at once. Taking advantage of the opportunity, cash starved mills pounced and raised prices quickly over the last nine months. Although price hikes are probably over now, and there may even be some price reversal, rising world demand keep prices at about current levels.
Skyrocketing steel prices
(Annualized price change)
|2003 Q2-2004 Q1||2004 Q1-2005 Q4|
|Source: U.S. Department of Commerce|