Steel Outlook 2011: Part Two

Having just outlined the case for rising steel prices in Part One, let’s take a look at the case for falling prices, which some have argued will follow right after this run-up and after the re-stocking that occurs during Q1. What would cause steel prices to decline? We see three primary factors driving price declines: any new/additional sovereign debt crises could negatively impact GDP, auto sales dropping below 2010 levels as well as additional commercial and residential demand destruction (both will remain below historical levels but will likely appear better than 2010) and any raw material price drops (though we view that scenario as unlikely).

Truthfully, we see more risks of prices going up than we do going down. As we have said previously, an annual US GDP of 2.5 percent typically grows steel demand. With 2010 US steel production at 88.5 million metric tons, according to Steel Business Briefing, the US market has performed under its historical average which ranges from 90 million tons (2001) to 101.8 million tons (2000) with most years in the mid to upper 90 million-ton range.

We have learned much over the past three years closely tracking steel price trends. For example, we have learned that very small demand upticks tend to create disproportionate price increases and in some cases, supply shortages. In addition, we know that the correlation between steel prices in China and steel prices in the US remains somewhat tight as raw material inputs (or steel-making inputs) tend to share the same general price trends (e.g. when iron ore costs increase, so too do scrap prices) meaning we can take pricing cues from places like China.

MetalMiner readers can access daily China steel prices through our own free MetalMiner IndX(SM)

But forget everything we have just discussed. Let’s just look at our own MetalMiner track record for steel prices. For those of you who subscribed to our Steel Price Perspectives back in January of 2010, you would have seen the following price predictions for Q4 2010:

2010 HRC Price Predictions:

Source: MetalMiner Steel Price Predictions 2010

And 2010 CRC Price Predictions:

Source: MetalMiner Steel Price Predictions 2010

Specific numbers appear as follows:

MetalMiner 2010 HRC Price Predictions:

Low – $650/ton

Med – $724/ton

High- $775/ton

MetalMiner 2010 CRC Price Predictions:

Low – $750/ton

Med – $848/ton

High – $909/ton

Now for the actual (we used the average Steelbenchmarker prices for December) numbers:

HRC: $727/ton

CRC: $838/ton

Will prices continue to rise throughout 2011? We predict some ups and downs but any market watcher hoping for $500/ton HRC might end up waiting a long time.

Join us for a free webinar on steel price trends and outlook for 2011 along with guest speaker Metalwest, where we’ll discuss how OEMs can improve profitability through lean metal supplier programs.

–Lisa Reisman

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