Rocketing steel prices sting packagers
MEPS, a UK supplier of steel market information. The company says
that in 25 years of analysing steel prices, it has not seen
anything like the present mania.
"It is not just a bull market, it's a rampant, raging bull market," says the company in a report published in February's European Steel Review. "Record levels of global steel production have drained all the available supplies of ferrous raw materials. Panic reigns, as the shortages and other cost increases are pushing steel prices up dramatically for hot rolled coil.
MEPS says that values in March are expected to be at an 8 and a half year high, and that there are rumours of suppliers cancelling orders in the sure and certain knowledge that they will be able to charge another €10 per tonne in a fortnight's time.
The cost of raw materials for making strip products has gone up substantially - 18 to 20 per cent for iron ore and more than this for coking coal. Prices of finished steel products are going up even faster. For most strip products these have shown rises of around €50 per tonne since December.
MEPS also reports that EU strip mills want to raise basis prices by a minimum of 8 per cent, or about €40 per tonne, from 1 April 2004. Researchers say that buyers may have little choice other than to agree, and try to pass the hike on to their customers.
There is certainly some speculative purchasing taking place. Stockists and end-users are ordering more than they need for their immediate requirements, as they know it will be more expensive later on. There may also be some double-booking taking place, which will add to the strain on the mills.
This is affecting the food packaging industry. "Packaging materials are significantly higher than they were last year," MEPS sales and marketing manager Barry Fish told FoodProductionDaily.com. "A lot of packaging people who use our European Steel Review as an industry marker will be concerned."
MEPS says that customers have been frightened by the rise in prices and tightness in supply, and many may not be able to get the tonnages they require no matter what price they pay. "Even those with long-term contracts may go short," said the company.
It appears that China continues to drive the market. Although there is growing reluctance to pay the higher prices, there is little sign of the Asian steel boom abating. MEPS says that buyers have recently been paying in excess of $US450 per tonne for imported slab, and $US340 per tonne for scrap.
"We are old enough to remember the days when European mills couldn't export to China unless they conceded a substantial discount: today China is paying a premium and still can't get enough steel," said the MEPS report. The value of top-grade scrap has risen by more than $US100 per tonne since December.
According to the analysts, the main challenge for steel companies this year will be to expand revenue, at least in line with increasing raw material costs. So far, they are managing to pass through some sizeable price rises.
"However, there will come a point at which end-users start to resist," said the report. "This could come into play first in markets such as construction, where contracts are signed on tight margins."
