What's New at Berlin

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July 18, 2006

Dear colleagues, customers and suppliers,

To say that the steel industry has seen some changes these last few years would be a huge understatement. As recently as 5 years ago, most people I talked with who were not actively involved in buying or selling steel knew almost nothing about this industry. Today, the opposite is true. Everywhere I go, almost everyone I speak with has heard something and knows something about what's been happening. It's an exciting time.

The latest saga of Mittal's successful pursuit of Arcelor to form a giant sized steel company was the most recent and one of the best examples of how this business has changed. Instead of a strong company acquiring a weak company, or two weak companies merging, or an investor acquiring idle assets of a bankrupt company, this was a story of a very large and very profitable steel company (this would have been an oxymoron just a few years ago) acquiring another very large and very profitable steel company.

There's still room for some more consolidation in the USA, with AK Steel and Wheeling-Pittsburgh Steel being mentioned as the most likely candidates for acquisition. But worldwide, there's an abundance of companies of a smaller size, especially in Asia, that are available to merge or to be acquired. The combination of Arcelor and Mittal, as large as that will be, 3 times larger than the next largest steel company, will still only represent about 8% of global steel production.

The other big change in the global steel market is the continued and rapid expansion of the Chinese steel industry which, by the end of this year, will have quadrupled their capacity since the year 2000, going from 100 MT to 400 MT of production. The Chinese government's and steel mills' plan for continued growth of 10-13% per year could have them doubling again in another 7 years. Whether or not this will lead to a global overcapacity and overproduction will depend a great deal on whether China's internal demand for steel grows at a similar pace.

Even with the added capacity that's come on line in Asia, the steel spot market prices have seen a dramatic price increase since this time last year. Current spot prices for hot rolled steel in the USA are around $630-$660 per ton, roughly a 40% increase from mid summer of 2005. The increased appetite for steel in Asia and Europe, the strong market for steel used in non residential construction and energy related projects in the US, the reduced output in the States due to the strike at AK and the accidents at Mittal Steel, the weaker dollar and the higher cost of scrap, energy and iron ore have all added various degrees of support to price increases here. If imports don't surge and demand remains steady, current pricing could hold another quarter or two, perhaps longer.

For stainless steel, the market has been even hotter in the last 7 months. Demand is up, nickel prices have exploded from $14,000/MT to $26,000/MT, and lead times are very long. All this has led to multiple base price increases throughout the year as well as to extremely high nickel surcharges. Current forecasts by industry analysts call for tight supply and high prices into at least the first quarter of next year.

Here at Berlin, we finally placed the order and have made the initial payments for a new coil slitter and dedicated packaging line, a 60" high speed Braner that will be installed in January. We'll be having a week long open house for our customers and suppliers to celebrate this purchase. We'll also have a second reason to celebrate, it will be our 40th anniversary of being a Berlin family owned business. So save some room after your New Year's party. This new line will be faster to run, faster to set up, be able to take more cuts at one time and generate larger coil diameters. As we get closer to the installation we'll be sending out more information.

As always, thank you for your continued support. I hope you enjoy your summer.

Regards,

Roy Berlin
President
Rberlin@berlinmetals.com

Previous Newsletters:
July, 2005    March, 2004
September, 2003    January, 2003    April, 2002
September, 2001  May, 2001  January, 2001
August, 2000  April, 2000

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