London –(Kitco News) --North American finished steel products have been volatile over the last year mainly due to the unstable economy while production costs are forecasted to escalate in the short term said MEPS, the U.K.-based steel consultancy.

Raw steel output, namely hot rolled coil, increased steadily at the end of 2009 into 2010 but steel consumption remained low as the economy showed no signs of picking up. Mills raised prices which increased input costs boosting positive figures until around May where seasonal demand slowed down, MEPS said.

“The steelmakers, desperate for orders, began to make a series of concessions and customers secured a further discount of around $US40 per tonne this month,” MEPS said. “The situation in Canada mirrored that in the US. Throughout the review period, distributors kept stocks to a minimum and there was also a scarcity of attractive import opportunities.”

According to MEPS, hot rolled plate had a strong first half of 2010 but did not perform well in the construction sector as sales of commodity grade material began to drop in June. Despite demand recovering due to the end-user sectors, the end of 2010 is forecasted to experience further declines.

Cold rolled coil performed well over the last year despite low inventories and little to no demand excluding automotive industry.

“The primary drivers of the positive price development were hardening scrap costs, tight supply and a lack of interesting import offers,” MEPS said. “Producers started to cut values in June as the traditional summer slowdown resulted in inadequate mill order books.”

The automotive industry pushed coated coils to positive levels over the last year as a U.S. state run rebate program stimulated sales. The construction industry did not perform well leading several mills to set up discounts in June and July as well as concessions in August, MEPS said.

MEPS said the construction sector also affected medium sections and beams consumption as nonresidential projects were low. Transaction values were flat for the year and producers are expected to have a hard time dealing with increased import penetration as their order books will suffer.

Reinforcing bar consumption is suffering due to problems with the building industry, MEPS said. “Despite the ongoing poor state of the building industry and reluctance by distributors to hold stock, the producers tabled a series of monthly advances through to June this year on the back of positive scrap movements,” MEPS said. “Mill activity remains soft with short delivery lead times and a price decline has set in.”

Sales involving merchant bars were flat between the mills and the distributors which led buyers to initiate price hikes allowing scrap prices to rise during the first quarter of 2010 until May. The forecast is grim in the U.S. and Canada as improvements are doubtful due to poor performances in the consuming sectors, MEPS said.

By Alex Letourneau of Kitco News aletourneau@kitco.com

Editor’s Note: Meet the Kitco News Team at the upcoming Kitco Metals eConference September 12-13, 2010. A not-to-be missed event featuring Ron Paul, Marc Faber and other industry heavyweights. The eConference is free with Pre- Registration www.kitcoeconf.com.

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