Steel Prices Increasing As Demand Strengthens Abroad

Steelmaker ArcelorMittal said it will lay off around 3.5% of their 287,000 employees, in Europe and the U.S., where the growth potential is more limited, The Wall Street Journal reports. However, the company said it is still expanding in emerging markets.

The company cut half of its crude steel production at the beginning of 2009 in response to the slack steel demand caused by the economic downturn. However the industry outlook has recently strengthened, as demand in China, Brazil, India and Africa has started to recover. As such, steel prices have risen 10% to 30% in the past three months and plants have started to raise their production rate to hover around 65%.

Despite the upward trend, steelmakers are remaining cautious about ramping up production and bringing back workers. China’s BaoSteel, Japan’s Nippon Steel and AK Steel in the U.S. have tentatively started price increases for some steel delivered in 2010. If the price increases will stick or not still isn’t clear, the WSJ said. Last month, some steelmakers tried to raise prices on some products but buyers rejected the increases and either held off or relied on their current inventories until the steelmakers backed down.

Within the European Union, steel demand is expected to rise between 10% and 15% in the first quarter of 2010, but prices aren’t expected to rebound until the spring, according to the president of the European federation of steelmakers, Eurofer.

Also, steelmaker Nucor, in recent letters to its customers, warned about multiple price and surcharge hikes on virtually every product sold for the month of January, reflecting the drama of an increasingly volatile steel pricing environment.

“The increase is coming off of what we think is a relatively small pickup in demand,” said Michelle Applebaum, of Steel Market Intelligence in Chicago. “The net result of a combination of bare-bones inventories with these occasional demand upticks is likely to bring us to a permanent new normal of oscillating steel prices in cycles far shorter than what we’ve seen in the past.”