Steel prices continue to remain high in the international markets. And they haven't even peaked, many experts are warning.

The price of steel-making raw materials such as iron ore, coal and scrap metal will continue to rise for several years, keeping pressure on manufacturers and consumers, Dan DiMicco, the head of U.S. steelmaker Nucor Corp, said at the American Metal Market's Steel Success Strategies conference last month.

DiMicco's comments echoed those of U.S. Steel Corp.'s CEO, John Surma, who told Reuters that spiraling iron ore costs were pushing steel prices even higher. Surma further warned that growing demand is straining miners' capacity to supply raw materials.

Further, in a recent interview with Bloomberg News, ArcelorMittal CEO Lakshmi Mittal said steel is in short supply and mills are running at full capacity. Mittal said steel production has not kept up with demand because steel producers did not invest in production facilities when prices were lower.

The shortage is due to accelerating demand and lack of investment while metal traded at lower prices, according to the world's largest steelmaker. "There is short supply; all steel capacities are running at full capacity," Mittal said.

Bloomberg News also reported the following (via The Philadelphia Inquirer): While demand in emerging markets such as China and India has surged, steelmakers have failed to keep pace because of rising costs and a lack of investment in new plants over the last decade.

In his latest monthly Steel Flash Report, Tom Stundza states:

The rate of steel-price increases has slowed but that doesn't mean that the price bubble is about to burst anytime soon. The batch of mill products tracked by Purchasingdata.com increased by 4 percent in June, but still closed the month 107 percent higher than at the lowest cyclical average in August 2007. Indeed, steel buyers are paying almost twice as much (98 percent) for hot-rolled sheet at $1,052/ton in June than a year-ago this month ($532).

The grim news doesn't end there.

BEAMA's Steel Products Group recently sounded the following warning bell to the industry:

Driven by supply factors, it's a situation progressively worsening, echoing the situation of four years ago when the price of steel rose by 50 percent. With the UK likely to suffer more than mainland Europe, due to fewer suppliers, industry sources believe the UK will experience a supplementary increase of up to $140/ton. The implications for contractors and manufacturers are serious.

All of this gloom-and-doom news for manufacturers is particularly bad for domestic automakers, whose sales are already plummeting due to a weakening economy and rising fuel prices. It's little surprise, then, that we'll soon experience sticker shock with that next car purchase, according to Carlos Ghosn, Nissan's CEO.

Agence France-Press recently reported (via IndustryWeek):

Surging raw material costs are eating into automakers' profits, even as rocketing fuel prices weigh on their sales, particularly those of large trucks and sports utility vehicles in the United States. Higher material prices are the "single most important challenge facing the industry," Ghosn said at the group's shareholder meeting in Yokohama.

American Metal Market is reporting that some auto suppliers might stop shipping parts to their customers if they can't get compensation for rising commodity costs — especially for steel, according to a survey by consulting company IRN Inc.

Indeed, Ghosn also said, "All car manufacturers will increase prices. It's a question of time. How can you not increase prices if the price of raw materials goes up 100 percent?"

Credit-Suisse analyst Michael Shillaker echoes the concerns of Nissan and underscores the long-term struggle ahead for steel prices. "The lack of response on the supply side to booming global prices is in our view a clear indication that the world is not capable this time around of responding," SteelGuru.com quotes the London-based analyst as having said. Shillaker said that a steel shortage could take years to resolve as prices get stronger and stronger.

BEAMA says steel producers started to implement a series of increases in January 2004 that arrived in the wake of increases already applied in 2003. Since then, the world's steelmaking capacity has been restructured with a few key global players taking control, according to BEAMA.

If there really is no end in sight to rising prices and the steel industry passes along higher costs, how will consuming manufacturers react? By substituting materials or putting off projects? Manufacturers must continue fulfilling contracts and deliver on time.

Resources

Arcelor Mittal Warns of Possible Steel Shortage
Bloomberg News (via The Philadelphia Inquirer), June 25, 2008

Steel Seen short for First Time in Decades
American Machinist, June 25, 2008

Nucor Chief Sees Decades of High Commodity Prices
by Steve James
Reuters, June 25, 2008

Nissan CEO Says Soaring Steel Costs will Drive up Car Prices
by Daniel Rook
Agence France-Presse, June 26, 2008

Steel prices to raise sharply - Credit Suisse
SteelGuru.com, July 9, 2008