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Steel's turnaround finally here?

Article Excerpt
The steel industry continues to grapple with some fundamental problems, such as higher raw material, energy and freight costs, but rising demand from many consuming sectors and higher sustained pricing hold promise for 2004.

North American steelmakers are encouraged by their full order books and expect 2004 to be better than last year, especially in the flat-rolled market. How much better remains a big question, however, due to uncertainty about the mills' ability to pass along sharply higher energy and raw material costs.

Steel producer prices move with commodity inputs--iron ore, coking coal, scrap--which have all risen dramatically in recent months. More exotic inputs--alloys such as nickel, cobalt and molybdenum--have escalated, too.

The story's the same with energy and transportation costs. Schnitzer Steel Industries Inc., a ferrous metals recycler based in Portland, Ore., reports that ocean freight rates were 50 percent higher in its fiscal 2004 first quarter vs. the same quarter a year earlier.

Steelmakers also cite higher health care and manufacturing costs as drivers of their recent price hikes.

Scrap. American Metal Market reported that purchase prices for No. 1 heavy melt in Chicago averaged $226.50 per gross ton on Feb. 20, compared with $102.50 a year earlier--a 120 percent increase. Shredded scrap in Chicago on Feb. 20 averaged $255, compared with $122 per ton a year earlier--jumping 109 percent.

Iron ore. Mining giants BHP Billiton Ltd. and Rio Tinto Ltd. locked in an 18.6 percent price increase for fine iron ore exports to Japan's Nippon Steel Corp., the two companies reported. The increases are the biggest, percentage-wise, since 1980 and reflect a weakened U.S. dollar and relatively robust market conditions. In particular, demand from Asian steel mills is buoyant, underpinned by a booming Chinese market.

The price move matches the increase negotiated by Brazil's Companhia Vale do Rio Doce (CVRD) and Europe's Arcelor earlier the same week. CVRD will supply at least 22 million tons of iron ore to Arcelor this year.

With steel prices in Asia quite strong, ore mining companies believe steel producers can afford to pay up, analysts have said.

Coking coal. Coal mining companies recently reported they believe the average price for coal sales during the 2004 coal year--which begins April 1--will be $51 a metric ton, which would be about 20 percent higher than the 2003 price. The coal price increase will be offset to some extent by increases in rail and port charges.

"Market conditions at this time are very favorable for seaborne and North American hard-coking coal," said Jim Gardiner, president of the Fording Canadian Coal Trust. "The tight supply situation that exists in the face of strong demand from our traditional coal customers and from new customers in China has sharply increased the value of our coal."

Natural gas. The Energy Information Administration projected that natural gas wellhead prices would average $5.40 in February, down from an average of $5.57 per MMBtu in January, and then would decrease...

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