U.S. steel prices, already at record levels, are surging higher on rebounding prices for scrap steel, boosting steelmaker's forecasts for the third quarter and full year.
Since the beginning of the year, steel prices have risen steadily, nearly doubling in some grades, buoyed by strong global demand, a weak dollar and the steep raw material surcharges used by many steelmakers to pass on rising costs to customers.
While many analysts and industry experts expected a second- quarter peak in prices due to slowing Chinese demand and cheap imports, pricing has stayed strong and no peak is in sight.
"I think we're in for a multi-year recovery here," said independent steel analyst Michelle Applebaum. "Typically, what would cap-off a recovery in the United States would be new capacity. People are pushing out as much steel as they can . . . but raw material costs are so high that incremental blast furnace capacity is just not going to come on scene."
Citing the surging prices and the strong demand, Nucor Corp. forecast third quarter earnings would be up to 20 percent higher than analysts expectations and Steel Dynamics Inc. sees second-half earnings 27 percent to 43 percent above Wall Street views.
International Steel Group Inc. also said it expects much stronger third quarter results.
Prices for scrap steel skyrocketed in July on strong demand from steelmakers and tight supplies due to production slowdowns at auto manufacturers.
After the spike, top minimill producers Nucor and Steel Dynamics announced plans to significantly increase their surcharges on flat-rolled steel shipped in August to $180 per ton and $150 per ton, respectively.
August auctions of scrap steel generated by automakers rose from July levels, an early indication that scrap could jump once again in September.
Neither company would disclose its current base price for steel, but Nucor's average base price for a ton of sheet steel was $575 per ton in the second quarter.
Integrated steelmakers, such as United States Steel Corp. and ISG, have also been boosting their prices for steel, as the companies benefit from higher market prices set by the minimills.
"We continue to be surprised by the market strength that is in all our market segments -- automotive demand, sheet products, plates and even rail products are all very much in demand," said Rodney Mott, chief executive of International Steel.
There are some indications steel prices could soon begin to ease. Prices for coke, a form of coal used in steelmaking, are set to subside as china has expanded its export quotas for the raw material. Steel imports to the United States are also on the rise, increasing more than 9 percent in June.
"Our prices are so much higher than the rest of the world, there's got to be a disconnect here one of these days," said Charles Bradford, an analyst at Bradford Research/Soleil Securities.
Still, Bradford said there is currently enough strength in other steel markets around the world to attract much of the steel that could be sent to the United States.
The pricing "gap is wide enough to attract foreign product, but it doesn't seem to want to come at any discounted price," he said. Reuters