Steel Mills Hiking Prices

U.S. steel producers are raising prices in hopes of reversing years of heavy losses, but experts warned there was no guarantee the increases will stick, given that the industry still faces anemic demand and a flood of cheap imports.

So far, the two biggest U.S. steel companies, United States Steel and Nucor Corp., which have performed better than their competitors, many of which have filed for bankruptcy, have both announced price increases on some of their products.

And AK Steel Holding Corp., which also announced a price increase of about $25 a ton on first-quarter orders, said it hopes steel prices will be about $50 a ton higher by the end of the first half of the year.

"Which wouldn't get us back to normal levels but gets us closer," Alan McCoy, spokesman for the Middletown, Ohio-based company told Reuters.

Steel prices are currently about $100 a ton lower than they were during the second quarter of 2000, said Mark Parr, an analyst with McDonald Investments. But a recent drop in industry capacity due to the shutdown of several of bankrupt LTV Corp.'s mills spurred most steel companies to raise their prices.

Prices for hot-rolled steel bottomed at around $210 a ton in December and are now between $220 and $240 a ton, according to Parr. Cold-rolled prices are also higher, but vary greatly depending on the product.

The U.S. steel industry has been in a spiral since 1997, when the Asian currency crisis unleashed a flood of low-priced steel imports into the domestic market.

Since then, cheap imports, weakened demand and ballooning retiree healthcare and pension costs have combined to bring the industry to its knees. So far, about 27 out of 70 U.S. steel companies have filed for Chapter 11 bankruptcy protection, though many are still operating.

Last year industry-wide price hikes failed to hold as inventory levels remained too high, causing analysts to say that integrated steelmakers jumped the gun in raising prices.

This time, however, could be different.

With steel prices at their lowest levels in about 20 years, customers have anticipated the rise, according to industry trade group the American Iron and Steel Institute.

"I would be favorably optimistic that it would stick and I think that's what we're hearing in the trades," a spokeswoman for the AISI said.

One concern is that so far the industry has seen no signs of a pick-up in steel demand, analysts said. The price increases, therefore, are unusual in that they are driven by capacity cuts as opposed to a strengthening in demand.

"The three big questions around the pricing outlook beyond what has happened for the first quarter are how quickly will LTV restart, how soon will a recovery in demand begin to reveal itself, and what will be the outcome of President Bush's section 201 investigation," Parr said.

The Bush administration launched a probe into unfairly subsidized foreign steel imports last summer at the request of U.S. steel companies and steelworkers. The International Trade Commission last month recommended the federal government impose tariffs on imports ranging from 20 percent to 40 percent, which would be phased down over four years.

Bush is expected to make a decision on what, if any, restrictions to impose by the end of the first quarter, analysts said.

If imports are indeed slapped with the recommended tariffs, it will bode well for domestic steel prices. Demand, however, continues to suffer from a downturn in the automotive and construction markets as well as the impact of a strong dollar, which has driven up export costs in overseas markets.

Pittsburgh-based U.S. Steel will continue to monitor market conditions to evaluate further price increases, spokesman John Armstrong told Reuters.

Many economists have forecast a U.S. economic recovery will take shape in the first half of 2002, but the Federal Reserve Bank has warned an economic rebound could come later, during the second half of the year. Reuters