Sunday, April 07, 2002
As tariffs kick in, steel prices rise
By Dan Nephin
The Associated Press
PITTSBURGH As less expensive foreign steel imports are being hit with new tariffs of up to 30 percent, U.S. mills are raising prices to meet increased demand, and some companies might even ration steel.
Pittsburgh-based U.S. Steel and other companies say they are not taking advantage of the pressure on foreign mills created by the Bush administration's tariffs, but simply 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, remain far below what they were in years past, they say.
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 about 6 million tons a year. A total of 15 million tons in annual capacity have been lost in a recent wave of bankruptcies; about 30 mills have gone under 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 Bedford Heights, 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's had no trouble finding steel for transportation and heavy-industry customers as long as they're 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, Mr. Siegal said.
Olympic's purchasing price increased in January and will increase again when U.S. Steel begins charging $50 more a ton for hot-rolled steel and an additional $70 a ton for 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, acknowledged that 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, Ms. Kovach said.
That's rationing to me, the analyst, 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.
He said he has no choice but to charge more.
We've seen our profits drop down, and competition is fierce out there, he said.
Some analysts believe the higher domestic costs and reduced availability of foreign steel could drive manufacturers out of the United States and into countries where they can get steel at lower prices. For instance, Mexico and Canada are exempt from the tariffs.
Robert Crandall, a senior fellow at the Brookings Institution, a liberal Washington think tank, said he doesn't expect big automotive or appliance manufacturers to leave, however.
Those people don't pick up and move overnight, he said.
Mr. Crandall predicted that increased prices and reduced foreign competition would lead to more so-called minimills. Minimills operate by melting scrap steel rather than producing the metal from iron ore, and tend to use nonunion labor.
Minimills, he said, can be built for less and can make steel cheaper than companies such as U.S. Steel, Bethlehem Steel and LTV.
They can build a plant and produce sheet steel for about $200 a ton in about two years, he said. He added that half of steel production is from minimills.
The big guys are dying, he said.
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