Stelco, Algoma, Dofasco face increased costs as steel market shifts: DBRS

CP via Yahoo! News

TORONTO (CP) – Canadian steel giants Stelco Inc., Algoma Steel Inc. and, to a lesser extent, Dofasco Inc. will all see their margins pressured through the rest of this year by rising input costs and steel prices that have fallen off cyclical peaks, according to a new report on the sector.

Dominion Bond Rating Service said the impact of rising iron ore and coal costs will be “most notable” at the three integrated steel producers through the remainder of 2005, given their exposure to those commodities.

Stelco and Algoma use significant amounts of coal in their blast furnaces during the steelmaking process. Dofasco is less sensitive to iron ore and coal price shifts given that they use more natural gas in their manufacturing processes.

The higher input costs come as steel prices have fallen from 2004 highs posted last fall.

But weaker industrial demand, increased exports from China and high inventory levels have contributed to a steady decline in benchmark U.S. flat-rolled steel prices, according to DBRS steel sector analyst Jarrett Bilous. Flat-rolled steel prices are now 35 per cent below August 2004 levels, reflecting a market correction, Bilous said.

Industry observers have said steel prices are now well below $540 US per ton, compared to $640 US per ton at the beginning of this year. Current prices will likely remain stable through the rest of this year, Bilous said.

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