March 14, 2004 

REBAR PRICES GO UP
(Due to Sharp Billet Price Rise)

Rebar prices have surged over the last three months by almost 40% due to the following conditions: tight supply of raw materials, rising freight rates, and increased global demand.

The long period of stagnation in the steel industry-- close to 15 years-- caused the bankruptcy, closure and mothballing of steel plants globally. As a result, many were unprepared for the surge in steel demand accompanying a nascent global economic recovery. This was exacerbated by the continued huge demand from China which continues at its unabated growth rate. Although China has taken a breather lately, it is expected to run down its inventory by May and may return to the market before then, adding more demand pressure later to the market. The traditional supply of cheap quality steel from the Ukraine and Russia to Southeast Asia has diminished due to competing demand from the strong Russian domestic market and the nearby Middle East market.

Freight rates have likewise shot up by at least 40% since the beginning of the year due to the large amount of raw material cargo being shipped to China to fuel its burgeoning requirement for iron ore and other commodities. In fact, much of the recent increases are accruing to ship owners.

Locally the price of steel have gone up from a discount to the price list to plus 45% to 50% over the Nov. 4, 2002 price list for PNS Grade 230 (structural grade) rebars and plus 36% to 40% for PNS Grade 275 and Grade 415. However, the finish rebar prices are still lagging behind the raw material price increases if the weakening peso is taken into account. As a result, the margins of the steel mills are being squeezed. The current finished goods prices reflect only raw material costs at roughly USD 400/mt as opposed to the prevailing regional prices of USD 470/mt for billets. Once the remaining raw material inventory obtained at lower costs are consumed and the steel mills are forced to return to the market, there is no recourse but for the steel mills to pass the additional costs to the end users. However, it remains to be seen if these costs can be passed on to contractors and developers who are already reeling from the sudden cost escalation of their projects with fixed price contracts. There are signs of increasing resistance to more price hikes and rebar prices are starting to level off in spite of the prevailing high billet prices.

The jury is still out on price hikes being sustainable for a few more quarters. Nonetheless, for the meantime, there is no doubt that rebar prices will remain stable with some correction taking place.