- The Washington Times - Tuesday, April 2, 2002

PITTSBURGH U.S. steel mills are raising prices to meet increased demand, and some companies may even ration steel.

U.S. Steel and other companies say they are not taking advantage of the pressure on foreign mills created by the Bush administration's new tariffs of up to 30 percent but simply are reacting to the market, where an improving economy is increasing demand and where supplies are limited.

Average prices, which had sunk to 20-year lows, remained far below what they were in years past, they said.

"We're trying to basically recover some of the pricing that's been lost," said Michael R. Dixon, a U.S. Steel spokesman.

A weak economy last year caused steel users to dip into inventories rather than buy steel, said Charles Bradford, an analyst with Bradford Research in New York. With reserves depleted, steel users now find themselves forced to buy at higher prices.

"There's suddenly a lot less supply of steel available," Mr. Bradford said.

And fewer companies making it.

When LTV Corp. idled mills in December, it reduced capacity by some 6 million tons a year. A total of 15 million tons in annual capacity have been lost in a recent wave of bankruptcies; some 30 mills have failed since 1998.

"With the lack of supply in the domestic marketplace, irrespective of tariffs, the price was going up," said Michael Siegal, chairman of Olympic Steel, a steel service center in Ohio.

Mr. Siegal's company gets steel from the mills to manufacturers. He said he has heard reports of companies allocating, or rationing, steel to buyers but hasn't faced it himself.

He said he has had no trouble finding steel for transportation and heavy-industry customers as long as they are willing to pay more.

"I was taught a long time ago, there's never a shortage of steel to buy, only a shortage of steel to buy at the price you want," he said.

Olympic's purchasing price increased in January and will increase again when U.S. Steel begins charging $50 more per ton for hot-rolled steel and an additional $70 per ton of cold-rolled and coated steel this spring.

U.S. Steel said it is not rationing steel to customers, but Elizabeth Kovach, a spokeswoman for Bethlehem Steel, said customers are being told it will take about twice as long to fill some orders as this time last year.

"We are extending lead time and managing our order entry," she said.

"That's rationing to me," Mr. Bradford said. "It's a very bad situation because everybody loses."

The fear of rationing prompts customers to double their orders, and they end up ordering more steel than they would like for their inventories.

According to Purchasing Magazine, which tracks steel prices, the market average for hot-rolled steel has risen to $260 a ton, compared with $210 a ton three months ago. Still, that's a far cry from the prices domestic steel commanded years ago. In 1980, the average price was $361 a ton.

It remains to be seen how much of the higher price users will pass on to customers.

"This is a serious problem in this industry right now," said David Phelps, president of the American Institute for International Steel, which represents foreign steel buyers. "Fundamentally, the 30 percent tariff gives very, very bad choices to producers in the U.S."

William J. Adler, president of Stripmatic Products Inc. in Cleveland, said companies such as his, which supply the auto industry, have been pressured to reduce costs over the past decade. Now, he said, suppliers are telling him to expect higher prices and rationing in the future.

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