It's a seasonal ritual at my house, one that goes something
like this About mid-December, dive into the bedroom closet,
retrieve a box or two of Christmas bulbs, a tangle of lights
and a beat-up tree stand. Then head to the living room, anchor
the tree in the stand, breathe deep and steel yourself for the
ultimate test ... stringing 10 feet of model-train track
together in as perfect and level an ellipse as possible around
the base of the newly decorated tree.
That part went well-or as well as could be expected, given
uneven floors, cramped space and one rotten house cat. What
didn't pan out as planned was the anticipated steady progress
of the Chinese-built, diecast metal 0-8-0 locomotive and tender
around a metal and plastic loop of Lionel's FastTrack. This
year, the Pennsylvania Flyer lived up to its last name
and in the space of five minutes flew off the track at least
that many times, defying gravity, the relatively steady hand of
its remote engineer (me) and the electronic commands issued by
the Powermax transformer to which that hand was affixed.
It wasn't the first time the Flyer broke pattern,
parted ways with its handler and joined the ranks of the
runaways. It was the first time, however, that the
locomotive ran away so often in such a short span of time. Who
hijacked the train?
If you've bought-or sold-carbon flat-rolled steel in the
past four years you may be asking the same question. It hasn't
been fun on either side of such transactions, given the
whipsawing that U.S. steel mills and their customers have
taken-and given-on the pricing front.
It's hardly news that steel is a cyclical industry, one
traditionally tied to and driven by physical demand, which in
turn pretty much paralleled fluctuations in the broader U.S.
economy. Over the years, influences ranging from labor actions
to an influx of imports, the proliferation of trade cases and
remedies that followed, and deep price discounting by desperate
men also played a role in propping up or undercutting industry
That was then. This is now. Welcome to the age of
hyper-cyclicality, where costs rule, cycles are compressed, the
stage is global, consolidation has delivered discipline and
steel prices soar and sink at relative warp speed.
One of the earliest hints of a sea change in steel pricing
dynamics came in 2004, when AMM's archives indicate
the monthly average price of Midwest carbon hot-rolled (HR)
sheet more than doubled from $18 per hundredweight ($360 per
ton) in January to $37.52 per cwt ($750.40 per ton) in
Looks like a cycle to me.
The monthly average price of Midwest HR sheet didn't reach
the $750-per-ton level again until March 2008, when it hit
$39.50 per cwt ($790 per ton) and kept climbing, topping out at
$54.44 per cwt ($1,088.80 per ton) in May before falling off
the table. And fall it did, like a stone in water. In the
fourth quarter of 2008, the monthly average price of Midwest HR
sheet plunged from $49.71 per cwt ($994.20 per ton) in
September to $29.43 per cwt ($588.60 per ton) in December.
Let's call this one a mega-cycle.
June 2009 saw the Midwest carbon HR sheet price hit a
five-and-a-half-year low of $19.39 per cwt ($387.80 per ton)
before setting off on a series of mini-spikes and retreats. The
most recent of these saw the monthly average price jump from
$28.42 per cwt ($568.40 per ton) in October 2010 to $36.63 per
cwt ($732.60 per ton) in the first week of January.
A week later, citing "continued escalation in raw materials
and strengthening demand," Nucor Corp. announced a $60-per-ton
price increase-the sixth consecutive hike for carbon sheet
since mid-November, pushing HR sheet prices up to the
$800-per-ton ($40-per-cwt) mark.
Say hello to the hyper-cycle.
Opinions on the forces behind the phenomenon vary from being
a by-product of globalization, the emergence of China and other
developing countries-and their growing appetite for steelmaking
raw materials-to the wholesale consolidation of the U.S. steel
industry and plain-vanilla capitalism.
But there's no question it's here, and probably to stay.
"The mills are pricing as if they are running an industry on a
trading floor," one Midwest service center executive lamented
in an exchange with AMM. "The supply chain just can't
react that quickly."
Hyperbole? Yes, but there's also little question that the
dawn of hyper-cyclicality has helped boot the word
"speculation" out of the supply chain's working vocabulary. The
latest series of cost-driven steel price increases and
carpe diem psychology prompted by order books filled
through March have spurred forward buying, for sure, but much
of the steel actually has a home already lined up and
The last time the monthly average price for Midwest carbon
HR sheet broached the $800-per ton-mark-$790 per ton, to be
exact, in March 2008-the steel industry's capacity utilization
rate, as measured by the American Iron and Steel Institute,
averaged around 88.8 percent. That same measure in the second
week of January, when Nucor announced the $60-per-ton increase
lifting the price to $800 per ton, stood at 71.8 percent.
Rising raw material costs, particularly for scrap, have
definitely helped fire the latest cycle of runaway prices. At
the same time, a 17-percentage-point difference in the
industry's capacity utilization rate between the $790-per-ton
tag paid for HR in March 2008 vs. $800 in January 2011 suggests
that rising costs aren't the only factor helping drive up steel
prices. Costs may be driving this runaway train, but production
discipline is stoking the boiler.
EDITOR, STEEL AND FERROUS SCRAP