Investors Watch: Trends and Outlooks for the 2008 Steel Market

By: Billy Kite

Industry experts have begun 2008 with announcements that steel-making costs are likely to increase this year. This rise in costs is due to input costs in the production process. The production costs mentioned are prices for scrap, electricity, and coal; all items used in various steel manufacturing. As well, iron ore, the raw material of steel may see an increase in its prices according to analysts.

Some steel companies are turning to PCI or Pulverized Coal Injection systems to reduce fuel costs in the production of steel. This system reduces the coke charge used in the smelting of steel by up to 50%.

One company official believes 2008 could see the first prolonged slowdown in the steel market since 2001. This forecast is for the second half of the year. It is felt that lower prices, coupled with a lessening of demand, may be a response to the sub-prime mess. The feeling is that some businesses are already feeling the effects of this debacle. Businesses may face increased operating risks as part of the fallout of the credit squeeze.

What may soften the blow for the steel industry is the continuing demand for the product in other countries. China and other Asian nations, India and some Middle Eastern nations remain hungry for this product. This bodes well for steel producers and manufacturers. Production is increasing because of these countries' demands. An official of one steel trading firm believes the transportation and energy sectors still have huge steel requirements.

So far, in 2008, the price for flat-rolled steel is increasing. This includes hot rolled and cold rolled coil. Analysts see a contrasting situation in the works so far. Steel prices are on the upswing while the stock market overall is in a funk.

U.S. steelmakers continue to announce price hikes for steel. Cold rolled coil prices are higher for delivery set for April 2008.

While some countries economies are overheating with growth (i.e. China), this is not the case worldwide. It is not the case domestically, either. Threats of a recession could dampen demand further in North America. This would be the result of less production in the auto industry and the housing industry. Less new homes built means less new appliances "made of stee" purchased.

It's interesting that steel prices rise as demand falls. A term for this is now in the industry lexicon, named 'steelflation'. It's the supply and demand axiom turned upside down, at least temporarily. Analysts feel this is due to a tight supply chain even with weak demand. Some analysts feel the supply will remain tight, therefore keeping prices high.

Another trend forecast for the steel industry is the consolidation of companies. This trend will continue as consolidation increases market share. Today, the top five steel producers only control 20% of the market share in the world. As companies merge, they experience immediate market penetration.

The global steel market is volatile, and highly competitive. Staying on top of all aspects of the industry and its trends is necessary for a company's survival. Today, the steel market will depend on growth economies for its own growth. It must develop strategies for staving off, or lessening the effects, of domestic downturns.

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