Rising steel prices to stabilise by year-end

Soaring steel prices could soften by the end of the year according to analysts. But contractors will have to weather another few months of inflation before costs start to drop.

Kaye Barrett, analyst at steel market business MEPS, said: "In the first half of this year prices will continue to go up. But the second half is uncertain because of the economic problems. It will soften, but whether it will collapse or there will be a gentle decrease we don't know."

Global steel prices have risen by 40% so far this year, while the cost of coking coal, the fuel used to make the metal, has soared by 300%. The massive price hikes have endangered some building projects, with the construction of a £29m sports centre in Ravenscraig, Scotland, being delayed because of rising steel costs.

The sports facility - in the running for use as a pre-games training venue for the London 2012 Olympics and Glasgow 2014 Commonwealth Games - might be redesigned to cut costs.

Barrett said steel costs had increased because of rising demand from China and India, increased freight costs and rising energy costs to produce the product.

While the picture could improve later in the year, analysts have played down fears that market speculators might drive prices up.

Last month, the London Metal Exchange (LME) began trading steel futures, but Barrett said it had not "infiltrated" the market yet.

"It isn't something the steel industry is using at the moment. We get our prices from actual prices traded in the market, not speculation," she said.

Neil Buxton, analyst at metals consultancy GFMS, said it was too early to tell if the LME would affect the market. "We've seen a massive increase across a lot of industry commodities - whether they are trading futures or not. It is not just down to speculators.

"Even if they are traded on the LME, normal underlying supply-and-demand issues set the price," he added.