...Insight steel analyst. But even those price levels may be too high. “I don’t see how low worldwide demand can support these prices,” he points out.
Steel prices are being driven not by demand but by a surge in scrap prices. “Scrap prices have gone crazy since late 2009. They are now just below 2008’s peak, and they could end up duplicating the 2008 spike,” says Anton. “Right now, inventories are thin, which is allowing higher prices to sneak back in. But once inventories are restocked, I think we will see prices fall back off.”
The China Connection
The inventory buildup was most acute in China, which pushed up global prices for many metal products last year with an enormous inventory buildup. While commodity prices entered 2010 holding strong, they have started coming down. Asia stocks, aluminum, copper and crude oil recorded slight first dips in the middle of March.
In China, the government has reinforced its commitment to cooling the economy. Premier Wen Jiaobao has restated his commitment to holding the value of the yuan steady, despite calls from the U.S. to increase its value to reflect market realities.
“Strong overcapacity in China,” where the supply is skewed to low-end types of steel, is starting to cap recent price increases, says Anne Stevenson-Yang, a principal at Wedge MKI, an equities research company based in Denver. But IHS Global Insight’s Mothersole asks, “How can commodity prices remain strong when those prices can’t go anywhere?”