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'Another terribly strong year': with few exceptions, steel mill executives are looking forward to another year of outstanding profitability due to solid customer demand and high prices.

Article Excerpt
Despite softness in fourth-quarter spot prices and uncertainties raised by the mega-merger of Ispat and ISG, North American steel mill executives are optimistic that the boom times of 2004 will continue into 2005.

"This year has probably been the best market the steel industry has seen in 30 years," says Mark Marcucci, president of the MACSTEEL unit of Quanex Corp., Jackson, Mich. "You have to go back to 1973 for markets that have been this wild and crazy."

Of course, actual results vary from product to product. Some of the hotter steel product forms have been plate, special-bar quality, flat-roll and oil country tubular goods. Other steel products--particularly those dependent on the still sluggish nonresidential construction market, such as structural shapes and structural tubing--are not seeing the same growth in demand. Nevertheless, suppliers of virtually all forms will continue to enjoy increased profitability due to the unusually high steel prices, which are factoring into current negotiations with contract customers for 2005.

James L. Wainscott, president and chief executive officer of AK Steel Corp., Middletown, Ohio, says his company has achieved double-digit price increases on the 2005 contracts it recently negotiated, even with customers whose old contracts were not yet clue to expire.

"It is a bit of a new steel world order. The world has changed permanently, as driven by China," said Wainscott, during the company's third-quarter earnings conference call in October. "Key customers understand this and put value on us being there. They want to be sure there is an availability of supply."

Likewise, other steelmakers are negotiating supply contracts early at attractive rates, shrinking the lengths of these pacts and adding surcharge clauses to protect them from unpredictable cost swings. In some cases this year, contract terms prevented producers from reaping the full benefit of the skyrocketing steel prices.

Spot prices early in the fourth quarter showed a slight downturn, raising speculation that steel may have peaked. But leading mill executives,...

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