New raw material contracts could push up global steel prices by $150/t, some 20-30%
New iron ore prices, together with increases in the cost of other raw materials such as coking coal and scrap are likely to push up steel-makers’ costs this year by $150/t. This is equivalent to approximately £100/t or €110/t.
On 30 March, Australia’s BHPB announced that it had agreed new short term iron ore contracts with Asian customers. In addition, several Japanese mills confirmed that they signed quarterly contracts with Brazil’s Vale at around 90% higher prices. BHPB and Vale are two of the world’s three largest suppliers of iron ore.
The implications for many of the world’s steel producers are massive both in terms of much higher costs and much shorter term price contracts. Fixed 12 month prices are being replaced by prices closer to the volatile spot iron ore market, and annual contracts are being replaced by quarterly contracts. Buyers of steel will be hit by a double whammy.
Taking the figures given to Steel Business Briefing, in 2010 most integrated steel producers may well have to pay around 90-100% more for their iron ore, 55% more for their coking coal and double for their scrap in 2010. Consequently their costs could be around $150/t higher this year than in 2009.
Roger Manser, managing editor of Steel Business Briefing notes that – as a result of the producers passing on these higher costs - many steel consumers are already facing a 20% rise in the cost of their steel, and there may be another 10% still to come. “This will add significantly to the costs of construction, as well as push up prices for cars, washing machines and fridges.”