Steel Prices to Remain High, Roland Berger Predicts

TROY, Mich.--Jan. 3, 20061, 2006--Rising steel prices have caused pain for many U.S. industries and significant relief is not on the horizon, according to Roland Berger Strategy Consultants.

Since 2003, steel prices have climbed by more than 150 percent. Hot-rolled coil prices -- a benchmark for pricing -- reached a record high of $756 per ton in September 2004 and averaged $744 per ton in 2005.

The recent spike in prices was caused by several factors including:

-- Increased consumption by China and India,

-- Recent consolidation within the United States steel industry and

-- Continued growth in demand for steel in the United States.

Over the past decade, China's consumption of steel has doubled. In 2005, it accounted for 30 percent of global demand.

"China is now the largest consumer of steel in the world," notes Wim van Acker, managing partner, Roland Berger Strategy Consultants, North America.

Industry consolidation also has played a role in rising prices. In 2002, steel prices were depressed, averaging just $319 per ton. Seven steel companies controlled approximately 53 percent of the U.S. market and there was substantial overcapacity. A wave of bankruptcies, mergers and acquisitions followed.

By 2006, three companies -- Mittal, U.S. Steel and Nucor -- controlled a combined 55 percent of the U.S. market.

"The proposed acquisition of Arcelor by Mittal will have a minimal impact in the U.S., but will further increase consolidation globally," says Antonio Benecchi, partner, Roland Berger Strategy Consultants, North America.

Demand for steel in construction is expected to remain high in 2006 and automotive steel consumption, led by sport-utility vehicles and automotive transplants also has been rising. After falling during the 1970s and 1980s, the popularity of SUVs caused automotive steel use to increase seven percent to 1,842 pounds per vehicle between 1990 and 2004. Transplant automobile manufacturers also are contributing to rising demand, with an expectation that they will increase domestic vehicle production 12 percent between 2005 and 2007.

"Today, steel companies have gone from being price takers in a competitive market to price setters with their customers," Benecchi notes.

Roland Berger expects prices to remain relatively high in 2006 and 2007. Prices for 2006 are forecast to be between $500 and $550 a ton. With no catalysts for significant price reductions in sight, prices in 2007 may decline somewhat from 2006 levels, but will remain historically high.

"The price increases in 2004 and 2005 were historically significant," says van Acker. "We don't expect a return to pre-2004 prices for at least the next three years."

Roland Berger is a leading global strategy consulting firm with over 1,600 employees located in 31 offices across Europe, Asia and the Americas. The company's global Automotive Competence Center of more than 100 professionals has completed more than 700 projects during the last decade. For more information about the company, visit www.rolandberger.com.