Week by week, the cost of finished steel in 2008 has grown although its pace, by production region, is not universal. In the Mediterranean, rebar prices started the year with regular hikes of around $5/tonne every couple of days. As the year progressed this rise became an almost daily feature. By mid-May the market was seeing increases in excess of $50/tonne a week, with Mediterranean trade reported at $1,200/tonne FOB on Turkish exports.

Finished steel prices have gained in the Far East, too, but not quite as rapidly. The impact of government policies in China and India, such as the introduction of exports taxes, revised VAT regimes and lower excise duties for input materials have contributed to reduced price increases and dealt a blow to both countries’ export ambitions. Mid-May Chinese rebar export prices were indicated at $990/tonne FOB.

Steel billets have increased in value in the Mediterranean and the Far East. LME data shows that within a week of the hard launch of its physically deliverable steel futures trading contract, prices had risen by $30/tonne to close trading at $1,025/tonne in the Far East and Mediterranean regions. Like rebar, billet costs have increased in both regions but the Far East has recorded a slower pace. By 9 May, two weeks into the hard launch period, the Far East contract was trading at $1,035/tonne compared with the Mediterranean contract which closed at $1,065/tonne. By 14 May, the spread had widened to $60 with closing LME values of $1,065 for the Far East contract against $1,125 for the Mediterranean, figures broadly in line with the physical market.

In recent weeks, the price of ferrous scrap destined for Mediterranean steel mills has risen more than $150/tonne from Europe and approximately $120/tonne from Black Sea countries. Driven by firm domestic and increasing export demand, prices have approached $700/tonne FOB in both areas. Meanwhile, this year’s coking coal negotiations have given rise to significant increases in annual contract prices while ongoing disputes between Chinese steelmakers and Australian iron ore producers persist.

Rebar heading to Dubai and the Emirates continues to top the price lists. Turkish producers are keen to offset rising input costs by passing price increases down the line to consumers. At a time when crude oil, the back bone of the Emirates economy, is trading at record highs, money is in plentiful supply so rising steel costs will do little to dent the region’s wealth. While premium prices can be achieved downstream, those upstream of the producers can continue to ramp up their prices.

In Asia, steel demand is soaring, driven by the rapid economic expansion taking place in the world’s largest steel producing country, China, and its near-neighbour India. The greater the rate of development in terms of infrastructure and building works, the more demand there will be for steel.

Demand that exceeds supply normally results in price increases. But the steel industry has also had to compete with soaring input costs across the board from energy through to coking coal, iron ore, scrap and billet. Steel producers believe prices would only start to fall if a major steel consuming region withdrew from the market. A recent, and limited, attempt to do this in the Gulf region however, simply resulted in higher prices when buyers returned to the market.

David Beattie
Steel eRingsider
Summer 2008