October 13, 2009

SAM VAN AERT

The volatility in steel prices in the first half of 2010 has deeply impacted the construction industry

FOCUS | STEEL

Steel prices expected to remain stable in short term

JEAN SORENSEN

correspondent

After recent increases, steel prices are expected to remain relatively stable in the next three to six months.

This expected stability follows on the heels of increases of up to 12 to 20 per cent worldwide.

However, no one in the steel distribution sector is betting on the stability or holding a quote, unless they see cash on the table.

Mike Maciag, inside sales supervisor for Wilkinson Steel (which last year added steel beams in five-foot multiples to its product line) said the volatility in the market has made it difficult to hold pricing.

“They will ask for a quote (and then once the project is firmed up) ask for a re-quote,” he said.

Wilkinson, like other steel distributors, isn’t holding pricing, unless the customer pays.

Maciag said the volatility seen in the first half of 2010 has caused many to simply hold off buying until they are close to project start-up.

Something that could kick prices forward by the end of June, said Maciag, is U.S. steel mills eliminating their “foreign fighter” discount, which is a break in pricing to match offshore suppliers.

But, the question remains just how much more can mills demand in the face of lukewarm demand.

Worldwide there are two moderating influences on steel prices: the lack of large-scale, steel-gobbling construction and that China is placing the brakes on its super-charged construction industry, fearing inflation.

While the demand side is sluggish, it is the supply side’s raw materials that have gone through unprecedented upheaval.

Steel refineries rely on two main sources of raw material – iron ore used with coking coal and scrap metal.

Originally, iron ore and coking coal producers set an annual rate for refineries.

However, this year three of the major producers asked for quarterly reviews, with rate adjustments including factors such as spot sales into China (which produces half the world’s steel) and the previous quarter figures.

That has thrown the industry into upheaval for the last six months. Also, the system creates a drag, whereby a lull in the economy in one quarter may suffer from increased activity – and higher prices – from a previous quarter.

Steel mills are transitioning through the new system; some accepting, some fighting and others increasing the amount of scrap used.

This has caused scrap prices to rise as well. Steel mills are cutting capacity and relying on inventories, until the $80 billion worldwide iron ore industry repositions.

Some question the rising prices.

“There is no visibility in pricing today,” said general manger Harbinder Dhillon for Richmond Steel Recycling, which sends scrap to steel mill Nucor in Seattle.

“At one time you had 90 to 120 days visibility on pricing, but now you are down to zero.”

Fabricators are waiting until the last minute to order and are getting orders on a “just-in-time” basis to ensure that there is no price change.

Also, he said, while Western Canada is busy, that isn’t the case for most of North America. Most steel mills are only running at 60 per cent capacity.

Dhillon estimates that the volatility seen in the first half of the year will level off.

Gabe Davis of Davis Trading, which also buys scrap steel, said prices are down right now, but 2010 prices have been a roller coaster.

He’s not looking for any kind of shift in prices until the end of summer.

Despite speculation that the Gulf of Mexico oil disaster and greater scrutiny of offshore drilling will accelerate Alberta’s oilsands development, so far pipe prices haven’t risen much.

“There’s been a slight increase but I have not seen anything dramatic lately,” said Darren Turecki, of Turecki Pipe & Steel, which supplies to the oil and construction industries.

Dave Hobden, economist for Central 1 Credit Union, recently published an economic analysis of B.C.

He is doubtful there will be much of a further rise in steel prices as there are few indicators of demand or fear of a supply scarcity.

He points to China’s reduced growth and locally, the federal government’s infrastructure program winding down in early 2011.

“Investment in buildings involving steel and heavy construction has been declining and I think will continue to ebb for another year,” he said.

Print | Comment