4/24/2008 Soaring Steel Makes Winners and Losers
Business Week

Soaring Steel Makes Winners and Losers
The price surge magnifies the disparity between steelmakers with their own raw materials and those dependent on world markets for them

by Robert M. Miller

Recently the prices of several key steelmaking raw materials have gone through the roof. Since the end of 2003, the price of iron ore has soared 321%, and it's up 65% just in the last year. Coking coal is up a staggering 582% since 2003 and triple what it was in 2007. And scrap steel has climbed 237%, doubling since last year.

These price increases have put severe pressure on the entire steel supply chain, particularly the downstream portion, as steelmakers, service centers, and customers fight over who will be forced to bear the brunt of the increases—much like in the game of musical chairs where the objective is to avoid being left without a seat when the music stops.

As a consequence of increased input prices, hot rolled band, the key steel industry product, is now being quoted at $1,000 per metric ton, which is a price barrier that has never before been crossed. Raw materials surcharges are being declared by steelmakers on what seems like a daily basis and passed along to increasingly alarmed customers. Some of these customers, particularly in the construction business (which accounts for about one-third of steel usage in the U.S. and about one-half in Asia), are choking on the price increases, as certain projects are being rendered uneconomical.

(scrap steel, recycling, automobiles, energy, iron ore, coal)

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