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Recent Steel Price Movement - Temporary or Permanent?

Back in February, I discussed the market price for steel supplied via stockists being approximately £100 per tonne lower than replacement prices. Since then until July this year, steel manufacturers have reduced rates in line with market conditions. With steel inventories being so high and demand depressed, the steel mills were forced to revise strategies. Among those strategies large cuts in cost base and capacities have occurred, the national press have publicised numerous examples of this.

Many are still experiencing depressed conditions, however, signs of the once high inventories have reduced to dangerously low levels creating an under supply of some products. With steel mills operating at low capacities and coinciding with European shut downs, the spike in demand to replenish inventories is creating delivery issues. These under supply issues are appearing to be used as reasons to increase prices; many rates have now been increased by 20 - 30 Euros per tonne. It will be interesting to see how prices hold once the short term spike returns to a depressed demand.

The mills will require increased rates for a return to profit. It is not healthy for such a big part of our supply chain to be making huge loses. Although, we need to be on our guard, the steel manufacturing industry brought pain to the steel construction industry in 2006 and 2008 with high and instant increases in price. They appear to be demonstrating the same philosophy - get as much as you can as quick as you can. It has damaged our market conditions before and will again.

My message is one that we shouldn't assume that we are going to be given reasonable notice of increases; there will be no or little time to prepare. Also, the level of increase will not be governed by inflation or what the industry deems as reasonable. Be cautious when entering into long term contracts without protection against fast moving price increases.