Global steel prices - brace for a correction?

By Humeyra Pamuk - Analysis

LONDON (Reuters) - Sky-high production costs, strong demand and tight supplies have pushed global steel prices to new highs so far this year, but a correction may be on the way towards the end of this year, analysts say.

Global steel prices have risen by 40 percent so far in 2008 as an export tax in China has halted supplies out of the country, squeezing the world market.

Production costs have more than doubled, with the price of key steel making ingredients such as coking coal and iron ore having risen by 300 percent and at least 65 percent respectively.

Major steel producers have managed to pass on their rising costs to their customers. ArcelorMittal (ISPA.AS: Quote, Profile, Research, Stock Buzz) for example has raised its prices several times in the last four months.

Analysts say there's still room for prices to climb higher, but then a bumpy rise might be at the door.

"At the moment most indicators we track are suggesting tight fundamentals and possibly higher prices," said Neil Buxton, analyst at industry consultants GFMS.

Buxton explained the reasons for higher prices as "cost pressures, lower exports for some products from China as well as surprisingly strong demand conditions".

Citi has recently raised its 2008 average hot rolled coil (HRC) and rebar benchmark price estimates both by more than 14 percent to reflect the cost increases of iron ore, coking coal and scrap prices.