Not too long ago, steel could be purchased during a down
market for about half the price of when steel demand was
normal. In an up market, a comparatively higher steel premium
might have been paid. Moreover, there were usually abundant
supplies of low- cost foreign steel available transported on
cheaply chartered foreign-flag ships that plied the oceans in
search of general cargo.
This began to change about five years ago. Hot-rolled steel,
a key benchmark base product for U.S. manufactured products,
cost about $175 per ton in 2001 and about $700 per ton in 2004.
Now it is selling for around $575 a ton.
Some are waiting for prices to drop, returning to the good
old days when independent local steel mills would churn out
large quantities of steel to fight declining prices. But a
return to the boom-to-bust steel prices of the past is highly
unlikely for several reasons. The main one is strong demand.
Led by China, the steel industry has enjoyed a sustained
increase in demand worldwide. As a result, worldwide steel
prices have generally stayed high.
Second, the steel industry has consolidated into dominant
regional players that are better able to deal with fluctuating
demand. These regional producers are able to capture local
customers and fend off competition from outside their areas.
The regional mills are often controlled by a few companies who
are better able to respond to a drop off in demand by reducing
production. In the past companies would keep their mills
running, flooding the market with steel that would result in
sharply lower prices.
Third, transportation costs have escalated sharply due to
higher fuel prices as well as increased demand. Increased
transportation costs are making it considerably more expensive
to bring in steel from other regions or countries.
For these reasons, a bust in steel prices that has typically
characterized the industry in the past is very unlikely. New
barges and other big-ticket items that are dependent on steel
should not expect relief from the current high steel price
environment.
Those in the barge industry who are waiting for relief from
high steel prices to increase their fleets are going to be
disappointed.
Steel prices are about as good as they are going to get.