Editor’s note: This article is provided by IHS Global Insight, Lexington, Mass., a leading provider of construction and pricing data. The authors are two of the nation’s leading experts in construction materials pricing.

The discrepancy between announced list prices and actual transaction prices has muddled the steel marketplace and confused buyers. Fundamentals still point to global spot steel price weakness and favorable buying conditions through year’s end. World steel prices have slipped this month in several regions, with a pronounced pullback evident in Asia and Western Europe. The slight rise in North American spot pricing for sheet steel is a case of a post-summer dead cat bounce rather than any movement toward the $40/ton price increase announced earlier by regional mills.

Despite price-hike announcements in China, Europe, South Africa and the United States, regional auto production already has passed near-term peaks so steel sheet demand is weak from such major markets as motor vehicles and parts, nonresidential construction and major appliances and equipment. Also note that costs of raw materials actually are retreating. World iron ore prices will drop 23 percent in the second half of 2010 largely resulting from a 10 percent decline in Chinese steelmaking output during this same time. This is attributable to the Chinese government clamp-down on energy use and inefficient industrial plants.

In addition, global scrap prices for October deliveries have begun to retreat by at least as much as their increase in September due to expectations of reduced fourth quarter world trade activity. Scrap, a key steel input, is grossly overpriced given that demand (year-to-date consumption plus exports) is eight percent below the 2007 level (the last year before the recession) while prices have soared 27 percent.

Hot-rolled sheet steel has averaged $581 this month, up two percent from the August level ($568) but still below the July level of $595. That’s because there is steel sheet price discounting earlier than seasonally normal. Such discounting is already evident for fourth-quarter deliveries in North America and some parts of Europe. Moreover, with no surge in early autumn purchasing, North American prices for plate, beams, rod and bars struggled to rise 1.3 percent in September.

U.S. consumption of steel mill products look to be about 75.4 million tons this year, up from 42.1 million in 2009 but still the weakest since 1993. There is excess supply since mills continue to operate around 70 percent of capacity and service centers have 2.6 months of mill products in stock. Pricing power remains limited since there is excess steel capacity both in the United States and globally.

The bottom line is that most of the announced $30-$40/ton increases for steel in North America for September are not sticking and there’s little chance of another $40 hike in price tags being implemented in October and November. IHS Global Insight still believes prices will decline in the fourth quarter of 2010 and maybe even the first quarter of 2011.