Despite ongoing economic uncertainties, the domestic steel industry is banking on low service center inventories and a dip in imports to sustain recent price hikes that are reaching historic levels.

The higher prices are putting a squeeze on consuming industries and service center profit margins.

Michael Crist, president of Merrillville's C & C Iron Inc., said his steel costs continually are climbing.

"They (steel suppliers) keep passing increases along," Crist said. "It takes a big jump, levels off, then goes up again. On Feb. 1, it went up $3.25 a hundredweight for structural steel. The local warehouses buy from the mills and when their costs increase, they pass it on to us. It's a vicious cycle."

Crist, whose company produces structural steel for commercial projects, said he tries to tweak his bids to allow for cost increases, but it's not easy.

"I can pass them (increases) along on any job I haven't bid," he said. You've got to keep looking ahead to see it they're going to increase. I try to keep a little cushion and hope it works out, but the more the cushion, the less chance you have to get the job."

U.S. mills have increased spot prices for hot rolled steel to above $700 a ton for March delivery, a hike of about $50 per ton from the previous period and almost $200 a ton higher than in August. Prices for tubular steel have jumped to as much as $200 per ton from $75 a ton for March delivery. Bar and plate prices have been a bit more restrained.

Nucor recently reduced its raw material surcharge for rebar, merchant bar and structural products by $10 per hundred weight, but increased its base price by the same amount,

Rather than to increase profit margins, steelmakers contend they are raising prices to recover climbing costs for iron ore, ferroalloys, coke, scrap, energy and shipping.

At the $700-plus-per-ton level, the price of hot rolled sheet is at its highest point to date, said Tom Stundza, author of the monthly Steel Flash Report.

Despite poor demand from the housing, automotive and appliances steel-consuming sectors, steel companies appear confident that price hikes will stick.

In his latest Steel Flash Report, Stundza says, "Given the recent round of inventory de-stocking by the service centers, the weak U.S. dollar and declining imports, and rising scrap and iron ore costs, the price increase are likely to hold."

Service center inventories fell by 62,000 tons by mid February, compared to the end of the year, and supply fell to 2.7 months at the end of January, compared to 3.5 months a year earlier, according to steel analyst Charles Bradford.

In 2007, steel imports declined more than 26 percent from historic 2006 levels, according to the American Institute for International Steel. In December, imports dropped 34.4 percent from the same month in 2006.

"Import arrivals since late 2007 have been depressed," AIIS said. "The weak dollar, high freight rates and better prices in other markets have made the US market unattractive to imports. Total imports in December were below 2 million tons. With imports at this level, even with demand at moderate levels, the domestic mills have a lot of pricing power."

During December 2007, U.S. steel mills shipped 8.495 million tons of steel, an 11.6 percent increase from the 7.609 million tons shipped in December 2006, according to the American Iron & Steel Institute. It was a 2.2 percent decrease from the 8,683,000 net tons shipped in November.

In a recent speech on the North American steel industry, AIIS President David Phelps said given the consolidation of the domestic steel industry, it's likely producers will succeed in defending their profit margins while squeezing those of steel users.

"The small number of sellers and reduced import competition enables steel producers to match a fall in demand with output reductions to ensure satisfactory prices and profit margins," Phelps said.