Q1 Industry Update: Rising Prices Matched by Rising Demand
In the midst of a long but progressive rebound, the steel industry is still seeing fluctuations in base pricing due to increasing demand, raw material costs and transportation costs. Despite these rising prices, most steel manufacturers and service centers are forecasting a moderate to strong increase in revenue for the beginning of 2011.
Base pricing from the mills has been affected by a number of global issues. While capacity has increased significantly in recent months from 2009, steel manufacturers are reporting huge increases in the price of iron ore. Mining company Rio Tinto, the world’s third-largest producer of iron ore, reported record profits in 2010, and BHP Billiton, a multi-national mining corporation, expects the iron ore price to retain its high level for the next two years. In regards to stainless, nickel hit a 34-month high in February and is expecting to increase in response to rising demand and increasing global production. Oil is on the rise, in part as a response to political unrest in Libya and Egypt, translating to increased transportation costs of both raw steel products and finished coils. In addition, there is some concern that the mills will be unprepared to meet the rising demand following the first quarter, leading to increased inventory margins from buyers and depleted mill supplies.
In spite of concerns, nearly every major domestic producer is anticipating a return to or increase in profitability and the stock market recognizes the increasing strength of the industrial metal market. Foreign producers are similarly indicating increased worldwide usage, although the regulatory structures and the rising dollar may change their profitability forecasts. All manufacturers cite increased demand in the technology, agricultural and consumer industries. Despite rapidly increased pricing – base prices have jumped around 45% since November 2010 – the mills report that, through 4Q 2010, they are operating at greatly increased capacities over 2009 and will continue to meet demand. In February, the U.S. Institute for Supply Management reported that manufacturing growth hit its highest level since 2004, indicating strong future demand, and Reuters reported that privately-conducted surveys of smaller manufacturers and businesses reflect a growing confidence and a heightened hiring needs.
Rolled Steel is currently anticipating future needs and carefully maintaining a strong inventory position. We continue to expect to be able to meet your material needs now and in the future, and is working to keep customers appraised of price adjustments and inventory changes as applicable. We are looking forward to March 2011 and expect increasing demand to continue.