February 5, 2008
 

MARKET PLACE

Raw Material 'Inflation' To Add Impetus To Steel Hikes: Timken
NEW YORK -- The rising costs of raw materials will keep showing up in steel product prices in 2008, but end-users in most industry segments are well positioned to absorb the increases, according to Ward Timken, chairman of Timken Co., Canton, Ohio.

"We're looking at tremendous volatility for scrap prices in 2008," Timken said, citing continuing Chinese demand for U.S. scrap as a major factor behind price increases. U.S. domestic prices for some industrial scrap grades jumped as much as $90 a ton earlier this month.

Prices of other raw materials, such as iron ore, are likely to be "universally higher" in 2008, and this will inevitably lead to inflated prices of steel end products, he said, speaking in his capacity as chairman of the American Iron and Steel Institute (AISI), Washington.

The steel industry is being forced to pass rising raw material costs onto customers after several years in which companies kept higher costs on their own books, Timken said. "In 2005, 2006 and to a certain extent in 2007 (steel) companies were eating up the higher costs. They can't do that any more," he said. "Sooner or later it will have to translate into higher product prices."

Customers such as original equipment manufacturers aren't happy with the price increases, Timken said, but have to accept that they are justified.

We're in a stand-off right now, but someone's got to win," he added. Steel prices have risen sharply in recent months, with U.S. mills pushing through several consecutive monthly price increases. Global steel prices also have been rising.

Despite higher steel prices and concerns over the health of the wider economy, Timken said most steel end-use sectors have good prospects for the year ahead, which should translate to another positive year for the steel industry. "Anything touching oil or gas, for example, will be good. I don't see demand for oil or natural gas going down significantly for 100 years," he said.

Problems could arise for the steel industry if customers' cash flow starts to shrink, Andrew G. Sharkey III, AISI's president and chief executive officer, said. However, he added that there were no signs of that happening to a large extent. "We're watching the liquidity of our customer base. If operating capital starts to dry up that would be a worry," he said.

Source: American Metal Market, January 23, 2008

 

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