MEPS (International) LTD recently commented on profit upgrades reported by a number of major North American steel mills as a result of higher than expected prices obtained in the market. According to MEPS, rising scrap costs over the period have changed market sentiment. As a result, MEPS forecasts for flat products have been lower than actual negotiated figures—a surprise to MEPS but also to most steel producers.

The influence of rising scrap costs has been most significant for the increasingly large percentage of production via the minimill route. The burden has affected selling prices in the flat products categories through the implementation of scrap surcharges. These have increased by up to $US150 per tonne for the electric steelmakers in the last two months to September.

Integrated mills are imposing more modest scrap surcharges, but increasing basis prices by substantial amounts as they follow their competitors upwards. Strip mill low transaction values have moved up in the range $US50 to 106 per tonne since July, due to a combination of tight supply and higher mill input costs.

MEPS expects scrap surcharges to move into reverse in November and steel prices to return, in December, to just above the previous highs achieved in July. The more buoyant plate market, with demand very strong and supply restricted. Although transaction prices jumped higher than anticipated, MEPS predicts a decrease in November as scrap surcharges decline.

MEPS further anticipate a steady decline in prices through 2005 after the downward adjustment in November and December. Predictions could, however, be upset if scrap prices soar upwards once again.

Higher scrap charges have had little impact on steel prices in the long products sector over the past two months, due primarily to failure of the commercial and industrial construction sector to recover. Major projects are being cancelled or put on hold. Demand for steel is slowing down and the threat from imports is always in the background.

Source: MEPS (International) LTD