Where is the Market For Tool Steel Headed?

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To suggest that prices are going to remain firm let alone possibly rise in the face of a potential recession seems perverse but that is the prospect facing the US Tool Steel market in 2008. As predicted in a recent article on Cobalt the metal price has continued to rise with trading this week at $49/lb on the spot market, levels last seen in 1978. The price of a range of other tool steel raw materials have been driven upwards by a combination of tight supply and the changes in Chinese Ferro Alloy export taxes reported in MetalMiner. The Chinese authorities doubled taxes to 20% on a range of Ferro Alloys in an effort to husband domestic supplies and dissuade investment in what are seen as polluting industries. This week has seen increases in Ferro Moly, up $2/lb to $34/lb following 20% price increases during 2007.

Molybdenum has faced a squeeze as supplies reduced 5% during the year but demand increased by 4% per annum. Analysts expect production to slide by 20 million pounds this year due to reduced output from Kennecott Utah Copper, Codelco in Chile and reduced Chinese exports.

Ferro Tungsten rose $.50/lb this week to trade on the spot market at nearly $16/lb. With the exception of Nickel just about every ingredient in tool steel is on an upward trend driven by the same combination of global supply tightness and reduced Chinese exports following the recent tax changes. Even Natural Gas, a key cost component for North American Stainless Steel mills has been rising on the back of Oil. An additional cost driver, at least for the US market is the weakness of the US dollar, which will increase the cost of imported material. With so much of the US market traditionally supplied from imports, exchange rate weakness will force importers to raise prices and allow domestic producers to push through raw material cost increases that much more readily.

Where this will lead Tool Steel prices as the year unfolds would look to be a one way story. Universal Stainless & Alloy Products increased prices back in September, according to Platts.

Certainly in the short term we see H1 prices continuing to rise, so cover your short term requirements now to carry you through for 6 months but after that, all bets are off. If demand slumps enough (and it appears as though most think China is not immune from an American recession), tool steel will come off too.

–Stuart Burns

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