Tariffs kick in, while domestic steel price increases

Monday, April 1, 2002

PITTSBURGH -- As less expensive foreign steel imports are being hit with new tariffs of up to 30 percent, U.S. mills are already raising prices to meet increased demand and some companies may even ration steel.

Pittsburgh-based U.S. Steel and other companies say they are not taking advantage of the pressure on foreign mills created by the Bush administration's tariffs, but simply reacting to the market, where an improving economy is increasing demand and where supplies are limited.

Average prices, which had sunk to 20-year lows, remain far below what they were in years past, they say.

"We're trying to basically recover some of the pricing that's been lost," said Michael R. Dixon, a U.S. Steel spokesman.

A weak economy last year caused steel users to dip into inventories rather than buy steel, said Charles Bradford, an analyst with Bradford Research in New York. With reserves depleted, steel users now find themselves forced to buy at higher prices.

"There's suddenly a lot less supply of steel available," Bradford said.

And fewer companies making it.

When LTV Corp. idled mills in December, it reduced capacity by some 6 million tons a year. A total of 15 million tons in annual capacity have been lost in a recent wave of bankruptcies; some 30 mills have gone under since 1998.

"With the lack of supply in the domestic market place, irrespective of tariffs, the price was going up," said Michael Siegal, chairman of Olympic Steel, a steel service center in Ohio.

Only shortage of right price

He said he's had no trouble finding steel for transportation and heavy industry customers -- as long as they're willing to pay more.

"I was taught a long time ago, there's never a shortage of steel to buy, only a shortage of steel to buy at the price you want," Siegal said.

Olympic's purchasing price increased in January and will increase again when U.S. Steel begins charging $50 more per ton for hot-rolled steel and an additional $70 per ton of cold-rolled and coated steel this spring.

U.S. Steel said it is not rationing steel to customers, but Elizabeth Kovach, a spokeswoman for Bethlehem Steel, acknowledged that customers are being told it will take about twice as long to fill some orders as this time last year.

"We are extending lead time and managing our order entry," Kovach said.

"That's rationing to me," the analyst Bradford said. "It's a very bad situation because everybody loses."

The fear of rationing prompts customers to double their orders and they end up ordering more steel than they would like for their inventories.

According to Purchasing Magazine, which tracks steel prices, the market average for hot-rolled steel has risen to $260 a ton, compared with $210 a ton three months ago. Still, that's a far cry from the prices domestic steel commanded years ago. In 1980, the average price was $361 a ton.

It remains to be seen how much of the higher price users will pass on to customers.

"This is a serious problem in this industry right now," said David Phelps, president of the American Institute for International Steel, which represents foreign steel buyers. "Fundamentally, the 30 percent tariff gives very, very bad choices to producers in the U.S."

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