With the 2008 iron ore price negotiations between BHP Billiton and Chinese steel mills still up in the air as of Monday U.S. steel producers see dollar signs in their future.
All of the feet dragging on iron ore prices is very bullish for U.S. steel producers, says Michelle Applebaum of Michelle Applebaum Research. Last week, Australian mining giant Rio Tinto clinched a deal with Baosteel for an 85.0% price hike, which shows that demand from China is strong enough to sustain a massive price increase. (See “ Rio Changes The Rules Of The Game”) and (See ” Rio Sets Steel Prices Alight.”) With U.S. steel prices already 20.0% less than offshore prices, demand in the U.S. will only continue to grow.
The weak dollar, high shipping rates, and strong overseas demand has been keeping steel imports from reaching American shores. The decline in imports limits supply, forcing U.S. steel companies to use full production capacity and allowing them to raise prices. As a result spot steel prices, which are prices for immediate delivery, have surged.
Monday marks the informal industry deadline for talks between BHP and Chinese steel mills, led by Baosteel, China’s largest steelmaker. But unidentified sources say the negotiations could drag on indefinitely, according to Reuters.
“It is unlikely that U.S. prices will stay below global levels,” Applebaum said. “There will be continued pressure to raise prices through the end of the year.”
Source: www.forbes.com
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