New “Steel Study” examines causes and impact of steel price increases

News The Association of Equipment Manufacturers April 29, 2005
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In response to the ongoing steel crisis, three associations involved in the off-road equipment manufacturing and retail industry have joined together to conduct a study that examines in detail the causes of price increases, both cyclical and permanent and the impact of these factors on agricultural- and construction-related machinery makers and dealers.

The study, “Steel Markets: Causes and Factors Affecting Steel Prices in the Near and Medium Term,” was recently released to members of the three trade groups: Association of Equipment Manufacturers (AEM), Farm Equipment Manufacturers Associations (FEMA) and North American Equipment Dealers Associations (NAEDA). The study was prepared by the economics-consulting firm, Global Insight, Inc.

The off-road equipment manufacturing industry is a major steel consumer, and in 2004 prices of almost every type of steel doubled in price, with several recording price increases of more than 250%.

“The steel problems of our industry currently faces are the result of a ‘perfect storm’ of issues. The boom in China, the lack of raw materials, a weak U.S. dollar and the 2002 “Section 201” steel tariffs have all combined to greatly strain the steel industry,” noted the associations. “By working together on a study such as this, we hope that AEM, FEMA and NAEDA can answer many of the questions our membership has and provide a better understanding of the issue for our machinery customers and our nation’s policymakers.”

The AEM-FEMA-NAEDA steel study cites several principal reasons for the rapid increase in steel price. As expected, the most important factor identified was explosive growth in the Chinese steel industry that strained global supply and lifted prices worldwide for steel making raw materials. Another factor the study singled out was a decline in steel prices over the two previous decades that led to U.S. under-investment in mill maintenance and new mines/facilities for raw materials. The depreciation of the U.S. dollar, tariffs on imported steel, increased prices for scrap and stronger industrial production in the U.S., Europe and Japan were also singled out. In addition to China, the study then examined other global short – and medium – term factors that could affect future steel prices, including probable growth in India. The study also looked at the policy factors and their possible effects on steel prices. These included further devaluation of the dollar, continued steel industry consolidation and various steel trade protection measures.

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