ahead when customers (in North America) get wise to the fact there may be cheaper imports around,” he says.

Fish expects prices will eventually fall in 2007 closer to prices seen in 2005. “The people who buy the more sophisticated products won’t get the full benefits of this,” he says. “The cheaper grades of steel would fall more because the impact is higher for lower grade than for higher grade.” Prices in 2005 fell as far as $200 from their peak in 2004.

Of course various factors influence this. If the dollar weakens, it would have an impact on the value of imports into the U.S. But it may also make imports into the EU more attractive.

Another factor in rising steel prices is raw material costs. Iron ore and scrap metals have jumped in price. However, Scott says that this has had little impact on overall price increases. “To be honest, I think the cost of producing steel sets a floor price and we’re so way off the floor price that you haven’t really got to worry about cost pressures at this point,” he explains.

Consolidation
Steel producers tout consolidation as a way to lower costs, by putting more in the hands of fewer and cutting down on low-cost imports that drive prices down.

Mittal Steel recently announced it would buy Arcelor. The merger follows Arcelor’s purchase of Dofasco, a Canadian steel producer, and Mittal’s earlier acquisition of International Steel Group.

Arcelor-Mittal will be a massive global player, but CRU’s Scott believes that the industry needs five or six producers of that size to make any difference in price.

“Until you can control the supply of imports, consolidation as it stands is only going to slow prices on a regional basis and only in the near-term,” he says.

Long Products
MEPS forecasts the following for long products:

• Structural Sections and Beams: Firm demand will continue. Threat from imports not significant.
  
• Wire Rod, Rebar and Merchant Bars: Further rises in selling values are anticipated for the fourth quarter; MEPS expects import pressure from low-cost Asian supplies in first half of 2007.

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Steel prices have skyrocketed in the past year, surpassing the highs reached in 2004. Strong supply conditions in Asia combined with unplanned steel mill outages have kept prices high, but there are signs for some relief ahead. Analysts interviewed by MDM forecast steel prices will start moderating in 2007.

Back in 2004, the price of steel spiked, and many industry watchers thought there was no way prices would get that high again.

“Most of us thought these ridiculously high prices were never to be seen again. But one of our world (average) prices in July was higher than the peak value we had in the boom period of 2004,” says Peter Fish, founder and managing director of MEPS (International) Ltd., a steel information firm based in Sheffield, England.

The market for flat products had been in decline until the beginning of this year when prices started to rise again.

Every industry from heavy construction to autos, appliances, pipe and heavy machinery, oil and gas and others has been watching closely. Steel producers have passed on increased costs to manufacturers in the form of surcharges and a rise in base prices. Some manufacturers have been able to pass on these increases.

In response, some distributors have raised prices. Airgas and Praxair both recently announced price jumps and attributed them to the rising cost of raw materials such as steel, aluminum and brass. While some manufacturers don’t anticipate they will see any more price increases from producers, steel prices will probably not fall far either.

“Prices around the world are at or close to peak levels,” says Paul Scott, research manager for carbon steel at steel consultancy CRU Group, based in London. “They will remain historically high.”

Supply Disruptions
So why have prices risen so high for flat products? For an answer to that question, look to increased production in Asia and unprecedented supply disruptions via steel mill outages in North America. The two combined have contributed to the price increase.

For example, shortages of plate created by an outage at a Mittal plant in the U.S. should keep prices expanding through the end of this year. Mill modifications at Severstal NA in the fall will also contribute to continued high prices. Other plants have also reported unplanned outages.

Consumption in China and Southeast Asia has been strong so some of the increase in supply has been absorbed there. The rest has been exported. Though that could have led to oversupply and a slackening of prices, that didn’t happen because supply tightened in North America.

“There’s been a particularly pronounced inventory cycle in the past few years,” CRU’s Scott says. In 2004 buyers worried about where they would get their steel. So they booked from everywhere to make sure they had enough supply. That material all arrived at the same time, buyers stopped buying, and the market collapsed. Buyers got burned because they had bought the inventory at a higher price than they could sell it.

Buyers are now restocking and orders on mills have rebounded, import costs are higher, and the price of raw materials iron ore and scrap have gone up, keeping prices high.

The Asia Factor
China has become a net exporter of steel. Though it has tried, the Chinese government has not been able to rein in steel production, and probably won’t be able to in the near-term, Fish says. Continued oversupply in Asia combined with a weakening market there would lead to a decline in prices, making imports more attractive to buyers here in the near-term. That, Fish says, may help push down prices in 2007.

“The impact will be felt sometime several months