steel prices soar -article

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    Posted 2/20/2004 2:18 AM

    Steel prices soar 66% in a world market 'gone mad'
    By Barbara Hagenbaugh, USA TODAY
    WASHINGTON — Shortage fears are leading to a rapid rise in steel prices, squeezing U.S. manufacturers already reeling from a deep three-year downturn.
    The price of a ton of hot-rolled coil steel in the USA hit $482 this month, up 66% from the recent low set in June, steel consulting firm Meps International said Thursday. The price rise comes not long after President Bush ended tariffs on imported steel in December, which was expected to lead to lower prices.

    Prices are rising because of a variety of other factors, most notably skyrocketing demand from China's rapidly expanding economy. Last year, China's steel demand rose 38 million tons, the equivalent of the annual steel usage in Mexico and Canada combined, says Peter Fish, managing director at Meps in Sheffield, England. The more China buys, the less steel is on the market.

    Supply concerns are so acute that there are reports of some steel-using firms hoarding the metal, compounding the problem. Nearly half of steel users said at least one supplier had canceled an order in January, according to a survey of steel users by the Precision Metalforming Association.

    "The world's gone mad. I've never seen anything like this," Meps' Fish says.

    Some steel companies are adding surcharges or even renegotiating contracts to raise prices to help offset their higher costs. Nine out of 10 steel users said suppliers raised their base prices in January, while 85% said they had to pay a surcharge, according to the PMA survey.

    For U.S. consumers, the rising costs will likely have little impact, because stiff competition is forcing steel users to absorb the higher costs. But for the manufacturing sector, which already has lost 2.2 million jobs in the last three years, it feels like an insult added to an injury.

    "We're hoping that enough people are getting hit that we'll be able to pass this on," says Jim McGregor, owner of Morgal Machine Tool in Springfield, Ohio. "There's just no way that we can eat this."

    Says Jody Fledderman, president of Batesville Tool and Die, a Batesville, Ind., firm that makes parts for the automobile industry: "It's already so difficult in this business, a lot of people are starting to think there has got to be a better way to make a living."

    Other causes for the increases in steel prices:

    • Energy prices have remained elevated, making the energy-intensive process of making steel more expensive.

    • A coal mine fire in West Virginia in 2003 has led to lower U.S. output of coke, a substance made from coal that is used in making steel.

    • The dollar has been falling for months, making all imports costlier, including steel.

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