Price story has major impact on all nations
WHETHER it is the cost of farm machinery in Australia or of cars coming off the assembly line in Detroit, the soaring steel price is not so much rippling through the global economy as surging through it.
For the automakers in the US, the price of hot rolled steel has shot from US500 a tonne last November to $ US1000 a tonne in May. This is expected to work its way through to the showroom price of American cars at a time when the US industry is fighting to maintain market share from foreign brands. The Detroit Free Press reports that the US auto industry will face up to $ US13 billion in additional raw material costs this year, twothirds of which will be for steel.
Locally, the ABC’s rural service recently broadcast the news that the big rises in the price of steel had seen significant cost increases on equipment and machinery bought by Australian farmers.
The steel index published by Londonbased commodity monitor CRU Group showed that average global prices rose 38.1 per cent in the year to March 31.
The London- based steel industry analyst group MEPS International has been sending out weekly bulletins that capture the breakneck speed at which developments are taking place.
At the beginning of May, MEPS said: ‘‘ US transaction prices are going through the roof with gains over the last four weeks as high as $ US145 per tonne for some products and more substantial hikes planned by the mills for June deliveries.’’
Then in mid- May: ‘‘ All MEPS flat products forecasts have been revised upwards as a result of the staggering 200 per cent price rise in coking coal contracts. Scrap figures also rocketed during April. Growing imports for most products will not be sufficient to relieve the tight supply situation in the market in the short term.’’
By May 21 there was also more news out of Europe: ‘‘ EU prices continue to increase. The mills are insisting that they must go up again in period three to reflect the rising costs of production. The initiatives are likely to be accepted due to a lack of any competitively priced alternatives.’’
MEPS’s latest bulletin predicts that prices will soar again in the third quarter of 2008. This coincided with an announcement by Corus, part of India’s Tata Steel, that it would raise by A$ 213 a tonne from July 1 its prices for strip steel. Japanese and Polish steel customers have also been advised that big prices hikes are just around the corner.
And why wouldn’t steel be rising like this? Iron ore costs out of Brazil shot up 71 per cent for 2008, following four years of successive rises. Metallurgical coal prices have tripled, and all the specialty metals that go into steel have surged in cost.
And the industrialising economies, mainly China and India, cannot industrialise without using huge volumes of steel.
Take just one sector, railways. It is an enormous consumer of steel. At the beginning of 2007, Beijing had committed itself to spending A$ 197.4 billion to increase the national rail network’s length by 20 per cent by 2010. On top of that, new metro systems were to be built from scratch in Hangzhou and Guiyang ( three new underground lines had just been opened in Shanghai) and on the drawing board there were seven new lines for Beijing.
German train brake manufacturer KnorrBremse Rail Vehicle Systems announced in early June that it had won orders totalling A$ 344.3 million to supply braking equipment to various Chinese rolling stock builders. This equipment was for 1490 new locomotives, 40 high speed trains and almost 600 metro cars. That rolling stock represents a lot of steel.
But it’s not just Asia. Kuwait is to build a 165km- long metro rail network, as well as 505km of double- tracked longer distance freight and passenger lines.
Demand is showing no sign of diminishing globally; even some US steel plants are expanding after years of question marks over their long- term survival prospects.
Nippon Steel, the world’s second largest steelmaker, has gone on the record saying that global demand has remained much stronger than expected, with no signs of inventory build- ups in either China or the US.
India is now a net importer of steel for the first time. The government believes the situation will worsen in the next few years.
Tata Steel itself has said that steel imports, which would total 7 million tonnes in fiscal 2008, would rise to 25 million tonnes in five years’ time.
Vietnam is another case and one which shows both the demand for steel and the impact on its price. In the first five months of the year, the country’s steel imports rose by 84.3 per cent on the same period the previous year. Yet the cost of that steel rose 137.8 per cent year on year.
Rumours were sweeping the Chinese industry in May that the Beijing Government was planning increased taxes on steel exports as part of its policy to close older, more highly polluting mills and dampen investment in the sector to cool economic expansion. The end result of steel exports Continued — Page 2