Johannesburg — ARCELORMITTAL CE Lakshmi Mittal has warned the world may be facing steel shortages for the first time in decades owing to accelerating demand.

This could lead to further increases in steel prices, which have risen almost 80% this year.

Speaking to Bloomberg in New York yesterday, Mittal said that while steel companies were producing at full capacity, supplies remained tight, and steel users would have to adjust to the new pricing environment.

In SA, infrastructure expansion means the local market is absorbing growing volumes.

Peter Dieterich, secretary-general of the South African Iron and Steel Institute , said unprecedented levels of locally produced steel were being dispatched to the local market. Of total steel output, 88% is used locally. The percentage for long products, mainly used in construction, is at 95%.

"In 2003-04 only 50%, and sometimes less, was absorbed locally," he said. "If one looks at the long term, the supply situation will ease. Several producers have indicated they will increase capacity."

Mittal SA spokesman Tami Didiza said the group was managing to meet local demand but even product from Saldanha Steel, traditionally dedicated to exports, have now been allocated to the domestic market.

"Demand is driven by civil construction. This together with huge raw material price increases will keep prices under pressure even in the months to come," he said.

The warnings of a structural change in the steel market come as the Competition Commission has seized documents at the premises of several steel producers and is probing alleged price-fixing in the industry.

Analysts were sceptical that the investigation would yield incriminating evidence, saying higher local prices were tracking the international trend.

But one warned that demand growth in SA was likely to taper off due to high inflation and interest rates. This could happen as Mittal SA's planned additional capacity comes on stream.

Much of the demand was tied to contracts concluded before interest rates and inflation began their ascent, said Cadiz African Harvest Asset Management analyst Kurt Benn .

"We have seen a slowdown in industries that are big users . The construction industry is also interest rate sensitive, but is likely to slow only in 12-18 months' time." This could see local prices decouple from international movements.

Also, the aggressive price hikes since the start of the year would prompt users to opt for replacements where possible.