Lawsuits, Economy Bolster Increases in Steel Prices

After several miserable years and many fumbled attempts at price hikes, U.S. steelmakers will likely hang on to most of a new round of price increases effective Jan. 1, industry analysts said.

“End users are using more steel. A huge change is taking place,” said analyst Michael Via at Anderson & Studwick.

Big steelmakers raised prices for flat-rolled steel, the sort used in cars and appliances, by $10 to $20 a ton above the current $425 to $430. Other prices will also go up.

“Pricing power is moving to the major producers,” said Richard Henderson at Perishing & Co.

Not since early 1989 has the steel industry been able to push through a major price hike and make it stick. A weak U.S. economy and poor demand from car companies and appliance makers hurt the profits of big steel companies, although some specialty manufacturers made money.

The six big companies atop the $39-billion U.S. steel industry posted operating losses of $1.5 billion in 1991 and an estimated $1 billion in 1992.

“Two reasons for higher prices: the strengthening economy and the dumpings suits,” Henderson said.

Besides prospects for increased demand because consumers and businesses are turning more optimistic about economic growth, U.S. steelmakers last month won a complaint with Washington trade regulators that overseas rivals exporting here were unfairly subsidized by their home governments.

Although penalties will not be imposed until the summer, interim measures such as obligatory bond-posting by foreign rivals have reportedly slowed down steel imports into the United States.

The biggest beneficiaries of the dumping complaints will be the large integrated steel groups such as USX-US Steel Group and Bethlehem Steel Corp., analysts said.

But higher prices depend much more heavily on U.S. economic growth, analysts said.

“If their customers are not profitable, steelmakers can’t be,” Henderson said.

Via said the most telling sign of a rise in steel demand is the steep run-up in scrap steel, an ingredient used in much new steelmaking.

The price of a ton of scrap steel has gone from $86.13 to $107.58 in just two months. The latest month-to-month rise was $15.77 a ton, the best single-month jump since February, 1988, Via said.

“Rising scrap prices are a good indicator of a strong economy,” Via said.

Henderson said he expects the U.S. economy to grow moderately in the next year but demand for steel-sensitive items, such as trucks, machinery and other capital goods, to grow more quickly.

“The pie is growing, and the (U.S.) guys will get more of the pie,” Henderson said.