- The Washington Times - Wednesday, March 10, 2004

Steel prices in the United States are surging, hurting many U.S. companies that bend and mold steel into parts for other industries, and the rise may lead to higher prices for products like cars and appliances, industry executives said yesterday.

A declining dollar and China’s hearty appetite for raw materials are driving the spike, industry executives and analysts said.

“Today we are experiencing the swiftest, largest increase in steel prices that I have seen in my almost 30 years in this industry,” said Bill Hickey, president of Lapham-Hickey Steel Corp., a Chicago-based firm that stores, processes and delivers steel to metal consumers.

Mr. Hickey and other steel industry officials yesterday at a House Small Business Committee hearing discussed causes and potential responses to the price spike.

Some companies want the Bush administration to restrict the export of scrap steel, an important ingredient for some mills. Scrap is fetching high prices overseas and driving up costs.

Others demand an end to duties on steel imports that compete with U.S.-made product. Steel processors can turn the imports of raw steel into a variety of components and finished goods.

“It appears as if there is not one single factor that would indicate why prices have risen to the degree they have, but rather a culmination of many factors. There is no quick fix here,” said Rep. Donald A. Manzullo, Illinois Republican and committee chairman.

The high prices caught companies by surprise — many had expected costs to fall after President Bush in December rescinded steel tariffs.

Mr. Bush in March 2002 imposed tariffs of up to 30 percent on steel imports to help ailing steelmakers and to shore up political support in states like Pennsylvania and West Virginia. He ended the tariff program ahead of schedule, saying the levy had done its job but also bowing to pressure from international trade partners.

“Now that the tariffs, thankfully, are lifted, the domestic mills will not fill our needs and foreign mills will not return our calls. We have no place to go for steel,” said Lester Trilla, president of Chicago-based Trilla Steel Drum Corp., a firm that makes containers for food, hazardous waste and other materials.

While the tariffs may have affected market, demand for raw materials and a weaker dollar are having a far greater effect on prices than the government intervention.

The prices leave steel processors caught between suppliers, who are trying to pass on the costs, and customers, who signed contracts for goods and do not want to pay more.

Prices for cold-rolled sheet steel rose from $390 per ton in December to $420 in January and $460 in February, according to Purchasing magazine, which tracks steel markets. It is on a pace to rise to $575 in March.

Underlying the higher prices are the declining dollar, which has raised the cost of imports for raw materials, like scrap steel and coke — the industrial fuel made from coal — and China’s voracious appetite for steel and raw materials used to make steel, like scrap and coke.

“China’s steel consumption has grown much faster than anticipated and has put a strain on the global raw-material industry,” said Wayne Atwell, an industry analyst with Morgan Stanley.

China’s steel consumption has more than doubled in the past five years to almost 290 million tons for 2003, according to Morgan Stanley estimates. By comparison, U.S. steel consumption in 2003 was an estimated 119 million tons.

Mr. Atwell said that market dynamics would drive steel prices “meaningfully lower” in six to 12 months. Some steel industry executives agree.

“If prices were to remain at current levels for any long period of time, other materials would be substituted for steel. So we actually prefer lower price levels and are confident that steel prices will soon decline,” said Wilbur Ross, chairman of International Steel Group, the conglomerate that took over assets of bankrupt Bethlehem Steel, Acme Steel, LTV Corp. and others.

Mr. Ross said that despite the sharp climb in prices, his company, formed in February 2002, also had to contend with rising material, energy and transportation costs and had not yet become profitable. Still, he and other steelmakers are rejecting calls for export restrictions on scrap steel, which some companies say would help keep down prices on the material.

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