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Steel Prices and the Great Recession

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Section 1

In the Wall Street Journal article titled, “Industry Cuts Back As Steel Prices Fall,” writer Robert Guy Matthews discusses recent changes in the price of steel in the U.S. He also discusses past and potential future influences on U.S. steel prices. These influences include the domestic supply and demand of steel as well as foreign supply and demand in the global market. Supply and demand have been mainly shaped by the recession at large.

In the month of June, 2010, U.S. steel prices fell despite stable prices for several previous months. Steel producers are now responding to the price drop by cutting back on production. Matthews notes that U.S. steel mills had increased their production earlier in the year because they had anticipated an increase in demand during the economic recovery. U.S. steel mills were operating at about 72% capacity in June, which was an increase of eight percentage points from the beginning of the year. Consumers have not been quick to purchase expensive goods that are made from steel, such as automobiles and appliances.

Analysts believe prices could drop even further in July in addition to forecasting continuing low demand for steel. Despite lower steel prices, steel buyers might not be able to benefit because large steel consumers use annual or biannual contracts with fixed prices. Steel buyers are also waiting to buy steel because they think that prices will drop further before August, when demand tends to increase at the end of summer.

The picture in China during the recession had been quite different than in the U.S., as demand for steel to build cars, bridges, and appliances helped prop up global steel prices. However, demand in China has slowed and brought fears of China exporting ...

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...ts to the U.S., the market clearing price of steel in the U.S. would be expected to fall in the future. Matthews mentioned that there was a 4% increase in steel imports to the U.S. in May, which might indicate that foreign steel firms also anticipated increased demand for steel in the U.S.

In addition to steel prices decreasing, spot prices on iron ore, a major input of steel production, have also decreased. Matthews specifically attributes the decrease in iron ore prices to the decrease in steel prices. As steel prices decreased, steel producers were less willing to pay as high of a price for iron ore as they had been.

Work Cited

Matthews, Robert Guy. "Steel Industry Cuts Back as Prices Fall." The Wall Street Journal. Dow Jones & Company, Inc., 06 July 2010. Web. 07 July 2010. .