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Phelps calls out steel market 'constradictions'.

Article Excerpt
THE U.S. STEEL MARKET and U.S. economy seem to contain a series of contradictions. While the banking crisis has created the environment for a recession that many believe is already here, the domestic steel industry has been raising prices, producing at full capacity and, for some products, putting customers on allocation. Many sectors of the economy are weak--autos, housing and white goods--and if one asks steel executives from mills or service centers, they seem mostly to agree that demand is not all that strong, with some exceptions of course, such as in energy-related markets.

The steel market in 2007 was weaker than in 2006 to be sure, with imports down by 26.6 percent, shipments down by 3.1 percent and the overall market down by 10 percent. However, the steel market was not as weak as the data suggest due to unusually high inventories at the beginning of 2007, which turned out to be a period of inventory correction that took essentially all year. Imports, however, experienced a merciless decline through the year, battered by the weak dollar, higher prices in many international markets and freight rates that escalated to levels unheard of in the past.

So, 2008 dawned with low inventory, setting the stage for price increases in the U.S. market. And prices have escalated at a rapid pace, with hot-rolled sheet rising to nearly $800 per ton for shipments April 1--up by $225 per ton since August 2007. According to press reports, the domestic...

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