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Steel imports to rise in ‘08, putting end to price hikes
PITTSBURGH — Steel imports may start to climb again by the middle of the year in a trend that could help bring an end to the recent increase in domestic prices, market participants said.

"Imports are going to start slowly to increase as we see domestic prices jump, order books fill and allocation becomes apparent," David Phelps, president of the American Institute for International Steel, said. "Import orders will improve over the first half of the year."

His comments came as the U.S. Census Bureau released figures showing that 2007 imports fell 26.6 percent to 30.16 million tons from 41.07 million tons the previous year.

Imports started declining in the middle of 2007 for a number of reasons, Phelps said, including service centers drawing down inventories, the weakening U.S. dollar making imports more expensive, a sharp rise in freight rates and a fall in U.S. steel prices compared with the international market.

"From our perspective, by the end of (2007) it appears now in hindsight that inventories have been drawn down too far and we've seen the beginning of the start of the replenishing process with rapid-fire price increases," Phelps said. "It's the market doing what it always does."

Other market participants agreed. John Anton, an economist and director of steel service at Waltham, Mass.-based Global Insight Inc., said the market is in the midst of a typical two-year cycle. "The odd-number year has high inventory so prices fall dramatically, so people stop making as much and stop importing," said Anton, who is based at Global Insight's Washington office. "So in odd-number years you start with excess inventory and go through an inventory draw-down. By the end of an odd-numbered year you see inventory declining and prices spike. It's kind of ridiculous how easy it is to see."

According to this model, imports will soon start rising again, although it may take several more months for that to happen, he said. "Since there's a four-month lag depending on where you're getting material from, imports won't start arriving until mid-year."

Import prices are higher than domestic prices, which has helped hold down shipments. But Anton said the rise in domestic inventories, and the consequent increase in imports, will send domestic prices higher later this year. "By the middle of the year there'll be no more inventory shortage and by the fourth quarter prices will go down again," Anton said.

"It has happened every year from 1996 forward." There is no possibility that the domestic steel industry will be able to supply the entire market, so imports are bound to rise again, one trader said. He agreed, however, that this would not happen in the first half of the year. "It's already too late to get (imports) now," he said. "People are quoting for June arrival. They'll wait until they can't find it elsewhere and then order."

The trader said he doesn't blame domestic mills for the lack of imports or for recent price hikes that have antagonized some end users. "The domestics are cranking up as much as they can," he said. "The mills will get what they're asking for and it's fair, based on their costs for raw materials. Their costs are up 40 percent. This isn't a conspiracy. Raw material prices are increasing worldwide so fast that the steel industry is having to pass those costs through."

Another trader said he has already seen a slight uptick in import order entry. "I heard a little bit is going to be coming in, but the quantity is very small," he said. "Prices are still extremely high but demand is picking up all over. We'll be getting out of winter season into spring and off we go again. I do believe prices will strengthen overseas."

Rebar is now trading at $740 a ton, up $10 from a week or so ago. Last year's fall in imports applied only to carbon steel products. The Census Bureau figures showed that stainless steel imports hit 1.1 million tons, up 6.4 percent from 1.03 million tonnes in 2006. The rate of stainless demand growth in the U.S. has been steady at 5 to 6 percent annually for many years, according to Phelps. "The intensity of steel consumption is lower than it is in other countries, like Europe and Japan," he said. "There is still a lot of growth potential here."

The rise in stainless import numbers coming as carbon steel imports faltered made sense, Phelps said. "The notion is that there's still a lot of room for growth in the U.S. It doesn't surprise me," Phelps said. "The industry itself is healthy."

Source: American Metal Market, February 15, 2008