***MB SPECIAL REPORT: What goes up, must come down?

Steel prices have now officially recovered. According to reports last week, prices for a variety of products in a number of regions have returned to levels not seen since September 2008.

Steel prices have now officially recovered. According to reports last week, prices for a variety of products in a number of regions have returned to levels not seen since September 2008.

A renewal in end-user demand has helped to facilitate the increases as stockists and fabricators also looked to replenish inventories, market participants say.

But many people are not happy.

By fair and away the main justification for higher semi-finished and finished steel product prices has been higher input costs, caused largely by the rising price of raw materials on the international market.

Look at some of the numbers.

Coking coal contracts for supply during the June quarter have been agreed 55% higher than the 2009 annual benchmark level. And they are set to rise even further for the September quarter, analysts predict.

Iron ore producers have been able to push through even bigger increases, agreeing 58-90% hikes for a variety of quarterly contracts with steelmakers around the world. They were able to justify the gains when cfr China spot market prices almost doubled over the past six months.

CIS pig iron export prices have grown by 86% over the last six months to their latest level — $530 per tonne fob Black Sea. Ukraine- and Russia-origin billet sold at this level as recently as mid-March.

And ferrous scrap prices have spiralled. According to MB’s Ferrous Scrap Index, bookings of HMS 1&2 (80:20 mix) cargoes cfr Turkey have rocketed up 80% to $463.26 per tonne.

Given the present state of the world economy, this is cause for concern.

“The last time something like this happened was 18 months ago, just before the collapse,” one European stockholder said. “We are all buying spot — we don’t want to get stuck with high-priced stock as we don’t see any support from real demand.”

“People are still thinking about what happened in 2008,” a trader based in the Middle East agreed.

The price increases witnessed over the past few months are not supported by final demand, some say, and are not sustainable as a result.

One thing is sure. Sales volumes are still very small.

“[Raw materials] prices have almost doubled in a year, it is a scenario similar to 2008,” said one European merchant. “But is it sustainable?”

The problem is a shared one, he continued, saying that he would only buy back-to-back given present market conditions.

“If people buy at higher prices and then go bankrupt, who is going to buy my material?”

So far, steelmakers have been forced to try and pass these increased costs onto their customers. These attempts have, of course, not been welcomed by consumers still under the pressure of reduced consumer spending and a difficult financial environment.

And credit insurance remains extremely hard to obtain — two major European steelmakers have been the latest to encounter problems in this area, according to traders.

“This is worrying,” said one.

2008’s collapse has obviously left permanent scars on the industry, and seemingly on market sentiment. And the same concerns remain.

“Prices might be going up, but the question is whether the contracts will be honoured,” another trader said.

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