NEW YORK: Steel production costs, like iron ore, metallurgical coal and natural gas, are already slated for sharp gains in the first half of 2010,
but US steel producers will find it difficult to pass on those increases to customers who have slowly increased orders.
Analysts said the strength of US demand for steel should be the key topic discussed as conferees gather this week in Florida for American Metal Market’s State of Steel 2010 conference.
“The big question is whether the industry is going to be able to pass on higher costs,” said Brett Levy, Managing Director and Director of Leveraged Finance Research at Jefferies & Co. Inc. in Connecticut. Analysts noted prices are rising on all steelmaking inputs. For example, iron ore prices are projected to rise between 30% and 40% in 2010 because of heavy Chinese demand.
On a conference call with analysts on Monday, US steelmaker AK Steel Holding Corp said it expected iron ore prices to rise 20-25%.
Natural gas prices more than doubled from late summer lows. Early projections call for 2010 contracts for metallurgical coal to be up 10-15% from a year ago. Electricity prices will increase to reflect higher coal and natural gas prices, analysts added.
Scrap prices too have rallied, with analysts citing lows of $86 a ton hit last March that recently rocketed up to about $300 a ton, near 2008 levels at the peak of the boom cycle.
A New York steel analyst noted that anticipation of spot iron ore price increases has contributed to the rise in scrap prices. “There is some flexibility in steel mills to be able to use a bit more scrap in blast furnaces, that can use up to 20 to 25% scrap and use less iron ore,” the analyst said.
Increased demand for scrap in export markets, especially China, India, and Turkey, also contributed to higher prices.