The truth: Pricing volatility and disparities widening in steel boom.

The consequence: Boom not sustainable.  Mistakes common.

The incredible steel price boom so far in 2008 is not sustainable

Please consider these items:

• The world export price for hot-rolled band in the past few weeks has risen at least $40 per tonne to about $940 per tonne (ranging from about $870 to $1,060 per tonne), FOB the port of export.  The Chinese steel mills appear to be on the low side of the price range, with at least one EU producer on the high side. 
• Given the recent $100+ per gross ton surge in steel scrap prices, a last-gasp push of the world HRB export price seems possible to about $1,000 per tonne, FOB the port of export.  In comparison, the current average export price may be about $940 per tonne.   
• The steel price boom is creating the conditions for a price reversal.  First, steel prices are so lofty that some steel buyers can’t pass on the higher cost of steel to their customers.  Second, some steel buyers will not be able to finance the higher cost of the steel they need to buy.  Third, steel scrap prices seem to have risen to unsustainable heights.  Once they start to fall, many steel buyers will sit on their hands anticipating a lower price for steel products (about one-half of the steel products produced in the world are impacted by the price of steel scrap).   
• Indicators to watch in the months ahead, in WSD’s opinion, include:  
• Steel scrap prices, which are assured to remain highly volatile;
• The value of the U.S. dollar versus the Euro, which WSD thinks has a good chance to rally in the next few months;
• The global steel demand outlook, which for the present is not looking good in the Advanced Countries; and
• Steel buyer/seller psychology, for which the pendulum has now swung so far in the favor of the mills that it may be at its limit.

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