Steel mills' cash flows surge

Once the books have closed on 2004, it's likely that steel mills internationally will have enjoyed a massive rise in EBITDA as higher prices and strong volume more than offset the surge in raw material costs and a lag in implementing one-year contract price increases. EBITDA for the global steel industry in 2004 may rise to $113 billion, or $117 per tonne shipped, versus $60 billion in 2003, or $67 per tonne shipped.

In 2005, while spot prices are likely to be down on the world market starting in the spring (assuming that the steel shortage ends) and raw material costs will be higher in most cases, EBITDA should hold up relatively well due to higher prices in the one-year contract market, some resistance to spot price declines in many home markets and good volume. At this juncture, we assume that the industry will be able to avoid a pricing "death spiral" on the world export market and that spot prices in a number of home markets should show some downside stickiness. Hence, we estimate the EBITDA for the global industry may decline by only 16% to about $95 billion, or $95 per tonne shipped.

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