Blame the upcoming Olympics in China if you want, but the real story on steel pricing these days is much more complicated. China is at the heart of it, however: Although Olympic-related construction is pretty well finished by now, the country has taken the opportunity to make miles and miles of infrastructure improvements and has ramped up development as well. Couple that with China's booming steel mill industry, and you're left with a U.S. market struggling to keep pace.
Stateside, “you've got a shortage of scrap supply, partly because of a major trend of using melted scrap,” says Chuck Bradford, a Wall Street metals analyst who cites rising ocean freight costs, a weak dollar, and a reliance on Chinese and European raw materials as factors in the price spike. “We're a net importer of steel, and it's very hard to create a new mill here.”
To put things in perspective: China produced 495 million tons of steel in 2007, compared with 100 million tons generated in the United States, Bradford says. And while China has increased the number of its steel mills, only one new mill, SeverCorr, has opened stateside in recent years. It's in Columbus, Miss., and it's owned by Russians.
Still, Bradford believes U.S. steel prices will settle down soon, and John Armstrong, manager of public affairs for Pittsburgh-based U.S. Steel, agrees. “There was a period not too long ago when there was an abundance of steel,” Armstrong recalls. “That time could come again.”
Ratio of Steel Prices to Consumer Price Index, 2002 –2007
Steel production and use: geographical distribution, 2006