As expected, steel prices are now soaring. There was a flurry of price increase announcements in the last week, some immediate and some for May 1st. For example, rebar and structural prices increased about $150 per ton, sheet and plate prices about $85 per ton and pipe prices as much as $100 per ton. These are the base prices. The surcharges are jumping as well, doubling since December due to mostly to much higher scrap prices.

Steel buyers are usually able to negotiate a smaller price increase than the announced rise. And they may be more successful than usual asking for a discount given the slipping US economy.

Nonetheless, everything is favorable for an outsized rise in steel prices this spring that is likely to partially reverse later in the year or early next year. Steel mills are experiencing rapid cost increases which they need to pass on. But they are raising prices much more than passing on costs would justify. They are increasing their margins in a period of very strong world steel demand. And they are capitalizing on their actions in recent months to let steel inventories decline to avoid permitting customers to stock up on low cost steel. In the latest Institute for Supply Management (OSM) report, buyers report that steel is in “short supply”.

On the cost side, iron ore prices are up more than 50% in the past year, coal nearly 10%, natural gas 13% and carbon steel scrap over 40%. Truckload freight rates for product delivery are set to rise soon after the huge jump in diesel prices. Also, the exchange value of the $US dollar continues to fall, raising the price of imported steel and the raw materials for steel mills. The $US depreciated 0.9% in the last month which a double digit annual rate of decline.

On the demand side, durable goods production is down 5.5% since last summer but this decline is partly offset by the 3-4% rise in after inflation nonresidential construction spending over the same period. In spite of the decline in US steel demand, world steel buying is still rising rapidly, although less so than a year ago.

The spring jump in steel prices will not be repeated later in the year. However much of the surge in steel prices will still be in place a year ahead.