Will steel prices normalise in 2005?

Despite the traditional summer slowdown in Europe, Arcelor, the Luxembourg-based steel giant has been able to report a strong third quarter performance.

Net profits for the third quarter have risen six-fold, to €629 million from €101 million a year earlier. Sales in the quarter increased almost 22 per cent to €7.2bn from €5.9 billion.

Insatiable Chinese demand coupled with raw material and fuel price hikes has compelled the steel companies to inflate prices while at the same time be able to maintain high orders. And according to steel analyst MEPS, steel price increases are set to continue for a little while longer, much to the chagrin of packaging firms.

The analyst says that Arcelor is considering raising prices in the first quarter 2005 by 3 to 7 per cent, depending on product. Dollé says Arcelor has already renegotiated two-thirds of its packaging industry contracts.

Corus and ThyssenKrupp are likely to lift their figures by a similar amount.

In effect, growing Chinese steel consumption in 2004 has been translated into increased raw material prices and rising maritime freight costs. This, coupled to better-oriented growth perspectives in end user markets in Europe, has allowed the European steel producers to announce price increases.

But there are suggestions steel industry is likely cool down next year after the huge price increases of the past 12 months, which have helped keep profits inflated.

Arcelor chief executive Guy Dollé has suggested that world steel consumption was likely to rise only three to four per cent in 2005, as against the expected eight per cent this year.

According to the Financial Times,​ he said it was "impossible" that price increases would match the 50 to 100 per cent rises for many grades of the metal in the past year.

German steel processor Salzgitter​ agrees that the global market for steel, which has been overheated by speculation, appears to be normalising again. However, the group does point out that scrap prices and sea freight rates are still on an upward trend and further price increases for coking coal and iron ore are likely in the coming year.

In the final analysis, Dollé feels that the outlook for Arcelor​ in 2005 is good. The high demand for steel is set to continue for the foreseeable future, with higher prices for Arcelor's flat steel shipments likely.

Contract prices - covering nearly 25 per cent of Arcelor's steel shipments - were likely to increase 20-50 per cent from early next year.

"Our customers have complained about this but on the whole they accept it. They know their prices generally held level during 2004 because they were buying under contracts that did not expire until 2005,"​ Dollé told the FT.​

The group, which had a turnover of €25.9 billion and shipments of 40.2 million tonnes of steel in 2003, has also just completed the full consolidation into the company of Companhia Siderurgica de Tubarao, its Brazilian subsidiary.