Steel reaches its melting point at well above 1,000°C but starts to lose its structural strength at far lower temperatures.

The white-hot steel market may not be melting, but signs of weakening abound - including in stock prices. While the S&P500 steel index rose 12 per cent in the first quarter, after soaring 58 per cent in 2004, stocks have been retreating since mid-March. US Steel shed 18 per cent last month; International Steel Group - which is about to be taken over by Lakshmi Mittal's Mittal Steel - Nucor and others have fallen from recent highs.

Commodity bulls see this correction as a blip, citing tailwinds propelling the sector's rise. The problem is that several factors underpinning the rally have been eroded in recent months. First, China, centre of the commodities boom, has turned from voracious consumer to net exporter of steel. Smith Barney analysts in Asia note that China's steel consumption fell by 0.6 per cent in February, the first negative growth rate since 1997.

Second, steel prices are cooling. Prices of hot rolled coil soared from $260 a tonne in 2002 to more than $750 late last year. While they remain healthy at about $600, industry watchers say they are hearing of prices softening to $550 and below. Meanwhile, the rising cost of coking coal and iron ore have punished steelmakers. The big producers are touting plans to raise prices, but recent efforts have failed to stick.

There are other reasons to suspect that the sector will decline this year. First, the falling dollar was a boon to users of US steel and global pricing last year, but the longer-term consequences of the greenback's decline are having a negative impact on end users in Europe. Indeed, Arcelor, the world's largest steelmaker, recently cut production in the region amid softening demand.

Furthermore, one industry veteran says, speculation that the US steelmakers are going to be acquired by foreign producers - following Mr Mittal's takeover of ISG - is folly. It is hard to imagine foreign companies buying steelmakers that have not been cleansed of their massive legacy costs through bankruptcy.

"Mittal did what he did for one reason and one reason only: he bought assets dirt cheap," this industry source says. "That game is over."

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