Sudden Global Demand For Steel Is Forcing Raw Materials Supply Down and Prices Up

FEBRUARY 24, 2004 -- Posted at: 10:30pm

HICKMAN, AR - Scrap metal is coming close to reaching precious metal status around the world. That's because the price of iron ore, coke and other raw materials, including scrap metal, used in making steel have quadrupled in some cases. The demand for steel is the reason why.

Joe Stratman, the Vice-President and General Manager of Nucor-Yamato Steel in Hickman, Arkansas near Blytheville, said, "The steel industry is global. It's not just a domestic supply and demand, but a world-wide one."

The demand for steel in China is molten hot. In fact, 38 million more tons of steel were produced last year than the year before. Now raw materials producers are falling behind on their output. Those factors, combined with the weakened dollar and a recovering U.S. economy are contributing to the steel price increase.

Stratman explained, "We are passing along to our customers the increase in raw materials via a surcharge mechanism."

Some believe that means you could be paying more for items made with steel: vehicles, farm equipment and large appliances to name a few. Others think it will have little impact, because competition is forcing steel users to absorb the costs.

Even though steel demand is going up, it doesn't mean steel companies are making a large profit. In December, President Bush lifted a tariff on steel imports hoping to send prices down as the country was flooded with cheap imports. Instead most of the steel is heading towards China. Nucor-Yamato's situation before and after the tariff hasn't changed much.

"That's because Nucor-Yamato didn't need to depend on the tariff to be competitive in the domestic market," said Chris Brown, a professor in Arkansas State University's Department of Economics and Decision Sciences.

The trend is only about two months old, but some experts believe it looks to be long-lasting and steel prices could get worse. Supply concerns are so critical, some steel-users are hoarding the metal, only compounding the problem.