Steel prices up by 150% in past three years, according to new study

Rise in key indicator affects water equipment as well as other manufacturers. Automakers expecting 26% rise in steel prices in 2005 due to doubling of demand in China's booming economy as well as reconstruction efforts in Middle East, South Asia...

SHEFFIELD, England, Dec. 29, 2004 -- The most tumultuous year that the world's steel markets have ever seen is coming to a close with a bang. Production of crude steel will exceed 1 billion tons for the first time. Steel consumption is at record levels. It is scarcely surprising that steel prices have been at historic highs. This is reflected in a new price analysis from MEPS International, a British consultant that tracks the steel industry.

Meanwhile, the Detroit News, quoting a survey of Original Equipment Suppliers' Association members, reported on Dec. 28, that U.S. auto makers expect a 26% increase in steel prices in 2005 due to doubling of demand in China's booming economy. Reconstruction in Iraq as well as recovery efforts in South Asia due to the effects of damage from earthquake-spawned tsunamis also will likely add to pressure on steel prices. The subject of steel prices was one of the testiest at a recent U.S. gathering of water and wastewater equipment manufacturers, many of whose products require steel as an integral component.

As of 2005, MEPS will be adding a new range of data -- average prices by region, for both flat and long products to its International Steel Review. In addition, it will be publishing a world average price, incorporating all products.

In flat products, the new average price is a composite of the four major product categories -- hot rolled coil, hot rolled plate, cold rolled coil and zinc coated coil. Tinplate and electrical sheet are excluded from the calculation.

The composite price is built up from a weighted average of consumption of each product in each of the countries for which we collect data -- spread across the major consuming regions of Asia, Europe and North America. The world average flat rolled steel price covers about 65% of global consumption.

The world average price for flat rolled products for this month stands at US$724 per ton, an all-time high. A year ago, the figure was US$449 per ton, so the increase over the last twelve months has been 76%. Looking back over two years, the number has increased by 94% since December 2002.

On an index basis, taking prices in January 1997 as being equal to 100, we find that the world average flat product price fell to a historic low point of 63.2 in January 2002. Since then, however, there has been an almost continuous climb, until the index for this month stands at 163.4 -- up 150% in three years.

MEPS prices are collected in the national currency of each country, and converted into U.S. dollars at the rate then prevailing. So the decline in the value of the dollar over the last couple of years has had the effect of inflating steel product values in countries such as those of the Euro-zone, and Asia -- though not China whose currency is pegged to the dollar.

In the last quarter of 2004, the market has changed considerably. While average prices in Europe and Asia have continued to advance, North American buyers have witnessed a decline in flat product values. The average price has dropped back from US$860 per ton to US$780 per ton. Europe, at US$794 per ton, is currently the highest priced market -- though currency movements could alter that position at any time.

About MEPS International
Based in the United Kingdom, MEPS International Ltd. (www.meps.co.uk) is a leading consultancy company operating in the steel sector worldwide. Formed in 1979, it provides a variety of studies and analyses on various aspects of the steel industry. For more information, see MEPS International Steel Review.

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