Steel Prices Come Back Down To Earth

Michele Halickman, economist and building materials analyst for Global Insight, stated shortages of steel are unlikely.
WASHINGTON - At the National Association of Home Builders (NAHB) Construction Forecast Conference, Michele Halickman, economist and building materials analyst for Global Insight, discussed commodity prices. Of particular interest to the HVACR industry are steel prices.

"Commodity prices have increased sharply over the last two years," said Halickman. Prices across the board in most industries have gone up. Oil prices and the hurricanes have also put upward pressures on costs.

Commodity prices are expected to come down in 2006, she said. "In the middle of 2005, commodity prices were declining but higher energy prices caused prices to escalate." But the worst is over, Halickman declared. The markets are behaving normally - higher prices brought added production - and demand growth is forecast to slow.

Steel prices hit record highs in 2004, she noted. However, they have come down dramatically in 2005. "You will not have to budget as much for steel in 2006," she said. "But you will have to budget more in the future than in 1990 through 2003."

Shortages of steel are unlikely, stated Halickman. There is some chance of tightness in alloy steel. The Katrina effects, she said, will be short-lived.

Looking back at the explosion in steel prices in 2004, Halickman said that sheet prices almost tripled and bar basically doubled. Prices were pushed upward by the "shock value" of Chinese steel growth. Global steel production saw 2 percent growth in the 1990s; that growth has been 9 percent since 2001. Other upward pressures were low inventory and coke problems.

The response has been higher production of steel, a temporary increase in imports, and deferred demand. "Inventory is now excessive," she said. Supply lines have adjusted to ensure availability. And prices are falling.

Structural adjustments in the market include new mine capacity. "Prices will fall more as supply increases," Halickman said.

Publication date: 11/21/2005

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