Global steel prices: the sky is the limit

By Humeyra Pamuk

LONDON (Reuters) - Global steel prices could hit new peaks in 2008, thanks to skyrocketing raw material, energy and freight costs, coupled with tighter supplies because of falling exports from China.

A looming recession in the United States poses a risk for demand, but many believe requirements from the developing world and China will help support prices.

And, after several years of working to develop financial futures for steel, the London Metal Exchange's billet contracts are hitting the ground as global steel prices eye new peaks.

"In our view steel prices will remain high because underlying raw material costs continue to rise," JP Morgan analyst Jeff Largey said.

Japanese and South Korean mills and Brazilian mining giant Vale (VALE5.SA: Quote, Profile, Research, Stock Buzz) agreed a 65 percent jump in the price of iron ore, the major ingredient in steel making, in annual contract talks. Spot prices are rising too, partly due to shipping tightness.

Coking coal prices have surged on the back of tighter supplies after severe flooding in Australia chopped off some 25 percent of total seaborne supply for up to six months.

In Europe, the price of rebar, produced with steel billets, jumped to 570 euros ($840.1) per ton in February from 440 euros in December. The price of hot-rolled coil (HRC), a semi-finished product in carbon flat steel, has risen over 500 euros in from around 480 euros in the same period.

Several banks have upgraded their steel price forecast recently to reflect the rising cost of steelmaking. Citibank expects hot-rolled coil (HRC) prices for 2008 to be at $700 per ton, up 12.9 percent from a previous forecast.