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Duluth News-Tribune
December 25, 2004
High Prices Cost Steel Users; Steel Mills Enjoy the Increase,
But Manufacturers of Steel Products Take a Heavy Hit
By Rick Barrett; Milwaukee Journal Sentinel
Steel prices will remain stubbornly high in early 2005, placing further pressure on manufacturing
companies, according to industry experts.
Contract prices for flat-rolled steel could increase 25 percent, or about $150 per ton, Wayne
Atwell, an analyst with Morgan Stanley Equity Research in New York, said Wednesday.
Increases won't be as severe for "spot pricing" — or cash prices — but the domestic steel industry
should have one of its most profitable years in three decades, Atwell said.
Some steel prices more than doubled this year, partly fueled by a weak U.S. dollar, raw-material
shortages and strong demand for steel in China, the United States and some European countries.
While good for steel mills, the price increases have hurt many manufacturers of steel products
and have forced some out of business.
High steel prices are having a chilling effect on the construction-equipment industry, with 28
percent of off-road equipment-makers postponing expansions because steel costs have eroded
their profits, according to a new survey from the Association of Equipment Manufacturers, a
Milwaukee trade group.
"We are very concerned about the potential dampening effect this will have on the continued
economic recovery," said the association's president, Dennis Slater.
On average, construction-equipment companies paid 60 percent more for steel this year than in
2003, according to the survey. Some companies paid up to 300 percent more for the same
materials.
As the price of steel soared, many companies delayed hiring workers and scaled back expansion
plans, Slater said. More than 30 percent of the companies surveyed said they outsourced some
production or moved it outside the country.
"Our survey underscores the adverse impact of steel pricing on our members," Slater said. "Some
43 percent of the companies said they have lost business or lost customers" because of higher
prices. "Just under 85 percent said they have been forced to absorb some or all of the price
increases."
Analysts said they saw few signs of the situation easing anytime soon.
"Some folks believe that steel prices are about to come down significantly, but I haven't run into
any contractors yet who have seen any price relief in the quotes they're getting," said Kenneth
Simonson, chief economist for Associated General Contractors of America, an Alexandria, Va.,
trade group.
"Expect price volatility," Simonson said.
Part of the problem is that China and India can't produce enough steel for their booming
economies, and that condition is expected to last at least through 2005, said Nancy Gravatt,
spokeswoman for the American Iron and Steel Institute in Washington, D.C.
China has more than doubled the amount of steel it imports, to about 250 million tons per year,
and is expected to import as much as 300 million tons annually for several years, according to the
institute.
Even if China's demand for steel cools, the depth of industrialization there will continue to
demand huge amounts of the material, Gravatt said.
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