The Wall Street Journal published an article in their September 14, 2009 edition (came out this evening online) and the writer presents a case for steel prices eroding. I have written to the author of the article with my own opinions and documents and we are involved in an email dialogue as I write this article. I think it is necessary to share some of my thoughts here as I expect the WSJ article could create confusion for those actually buying and selling steel in the marketplace.

In the article entitled: “Steel Prices Drop, Reversing Course in Sign Mills Ramped Up Too Quickly” the writer presents a case hot rolled prices peaked in August at $600 per metric ton ($544 per short ton) and have dropped by approximately 8% since. The reasoning is the steel mills are bringing back too much capacity too quickly (the author’s response to an inquiry I made this evening was the key piece of information he was trying to relay was an expectation new higher prices may not stick).

Prices in China have been dropping steadily over the past 3-4 weeks – and have probably dropped somewhere in the 8%-12% range during this time frame. Chinese prices are dropping due to out of control production and speculation within the country.

I cannot speak to the prices in Europe as I tend not to follow them on a regular basis.

Prices in the United States have risen steadily since the AK Steel price increase announcement on June 2nd. All of the steel indexes for the United States have been rising in unison since the middle of June and are now at their peak at approximately $540 per short ton ($595 per metric ton). The SMU range continues to be fairly tight $520-$560 per short ton with our average as of Friday of last week continuing at $540 per short ton. These increases have occurred without a significant rise in real demand. The only steel market segment clicking right now is the domestic auto segment – and it may be less about clicking and more about lack of supply due to too many production facilities being idled - which has caused issues within the auto market.

As SMU has discussed in a number of articles previously – U.S. steel prices are being held up by tightness in supply in relation to existing demand, the lack of foreign steel (or competition) and steel service center inventories at levels below 2.0 months based on anemic shipping rates.

SMU expects supply could very well be the tipping point to soften prices by late 4th Quarter and into the 1st Quarter 2010. However, if USS decides to take down their reported ailing #14 blast furnace at Gary Works – all of a sudden the other USS furnaces being brought back up are not such a big deal.

Both U.S. Steel and ArcelorMittal are behind in their order book and have no choice but to bring up blast furnaces. How long will it take for them to catch up on their late orders – and what will real demand look like in December and January?

It has not yet been determined if there are too furnaces coming online too quickly here in the U.S. and if steel prices will suffer.

SMU appreciates the comments of our readers – send them to info@steelmarketupdate.com