An array of new developments has caused WSD to increase the odds that a shortage occurs for hot-rolled band on the world export market by this summer.  If, in fact, a shortage develops, the next question becomes:  “What kind of shortage will it be?” 

·        Might the shortage be a subdued one in which the HRB price on the world market peaks at only $575-600 per tonne, FOB the port of export?  If so, the price would fail to rise to the September 2004 peak of $625 per tonne.  (Note:  The average price reported on January 24, 2007 by the SteelBenchmarker^TM was $505 per tonne, up for the third consecutive time, albeit by only a minor amount.)  We place 60% odds on this possibility.  

·        Or, might the shortage be a “blow-off” in which a buyers’ panic causes the world HRB export price to surge to a major premium to home-market prices?  For example, the price could rise to $675-700 per tonne, FOB the port of export.  We place 40% odds on this possibility.  What happened in the two most recent blow-offs?

q       In 1973-74, inflationary expectations were the driving force causing the surge in steel prices on the world export market, fueled by oil prices, which had skyrocketed.  Worries about higher steel prices caused steel buyers to rush to place orders well in advance – which created the shortage psychology.

q       In the 2004 steel shortage, buyers feared an inadequate supply of steelmakers’ metallics and metallurgical coke.  Worried about whether steel production would be adequate to completely meet market demand, they placed excessive orders with the steel mills – often double ordering to ensure they got the steel they required.  (Note:  In fact, steel buyers were wrong.  Global steel production in 2004 rose 9.5% to 1.06 billion tonnes, composed of a 24% gain to 275 million tonnes in China, and a 5% rise to 787 million tonnes elsewhere in the world.)

Why may hot-rolled band prices be headed up?

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