Price story has ma­jor im­pact on all na­tions

Robin Bromby

The Weekend Australian - Review - - Steel -

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

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