The State of the Steel Industry According to an AME Report 2003 - News Item

According to a report published by AME Mineral Economics, the steel industry will forge ahead through 2003 and into 2004. Global production is at record levels and prices are at the highest they have been since mid-2000, with further increases being announced.

China is providing the main propulsion for this surge in the steel market, as its flourishing domestic economy and rapidly expanding industrial sector are buying up any available surpluses in both steel products and feed materials, including iron ore, scrap and pig iron.

Meanwhile, despite wavering economic performance in the world’s other big steel markets principally the US and Europe protective trade measures, have supported rising price levels. Backed by import controls, Europe’s more consolidated steel sector has been able to constrain output and has successfully implemented quarterly price increases during the past year, with more to come. In America the healthy price environment has provided the impetus for the beginnings of industry rationalisation.

According to the report, this situation is creating new pressures for steel producers. Unprecedented steel production levels have pushed up scrap prices in Asian markets to heights not seen since the mid-1990s. Pig iron prices in East Asia are now above their mid-1990s peak, reaching US$195 per tonne (CIF) - up 60% year-on-year. The coke market is extremely tight and iron ore producers, stretched to satisfy demand are pushing for substantial price increases. Freight rates too have increased substantially. Overall, the surge in steel prices has powered a turnaround in steel companies’ financial results, but relatively few are reporting returns sufficient to satisfy investors.

Other areas covered by ‘Steel 2003 - Flat Products Production Costs’ include the costs from raw materials through to hot rollings. Here, a range of almost US$150 per tonne in hot rolled production costs is reported, meaning that costs at the top end of the range are almost double those of the lowest-cost producers. AME estimates the 2002 weighted cash cost of plants in the sample at US$207 per tonne - about US$20 per tonne above the prevailing hot rolled coil price at the bottom of the cycle in late 2001 and early last year. These issues have and will continue to drive steel industry consolidation, a relentless focus on costs and the development of customised and value added products to shield producers from commodity market margin squeeze.

Posted April 2003