May.22 MetalBiz--Recently, the prices of several kinds of raw materials mainly used in steel production rocketed. Iron ore price has rose up 321% since the end of 2003 and climbed 65% only in the year of 2007. The increment of coking coal price from 2003 to now is more shocking and has reached 582%, tripled compared with that of 2007. Steel scrap ran up 237% as well, doubled since 2007.
All these raw material prices rises pose huge pressure to the whole steel supply chains, especially to downstream enterprises. All steel plans, distributors and service centers are worrying about who will assume the tension of cost increase to undertake the drastic prices competition.
The final winner
The sharp rises of raw material prices brought another important impact, namely, the gap between those self-sufficient united steelworks and other plants that purchase raw materials from global market will become greater, which has never occurred before.
In the furious competition, upstream raw material producers have the most apparent advantages in a short-term as they have the product all need, which is also the main reason why they can promote the sharp rising of raw material prices. But it still exits one big problem for them, namely, how long will the gap between supply and demand last for? Some industry analyst believe the imbalance of iron ore supply and demand in international market will go on into 2012-2015 while some others think the gap will remove soon.
Other potential winner will be united steelworks, which can realize self-sufficiency of raw material including some steel makers in Russia, Ukraine and Eastern Europe such as Severstal, and Metinvest Group.
Potential loser
The potential loser will be those steel enterprises that cannot supply raw materials themselves or rely on global market. They are mainly some steel makers in Japan and South Korea.
Another potential losers will be those downstream companies that don¡¯t have strong competitive power. Anyway, there must be some firms to absorb the cost rises, including service centers, processors and steel users.
The last way out
Those steelmakers that cannot supply raw materials themselves should seize opportunities and aim at upstream enterprises. It is very important for steel companies to own or control raw material sources they need.
As these enterprises don¡¯t have formal futures facility to hedge their market investments, they must keep buying raw materials in open market, acquiring raw material companies or hedging through non-holding investment in them. Of course, another choice is to sell itself out when steel, metal and mining companies are transacting at the highest evaluation. As for downstream enterprises, the best method to avoid the wave of raw material rises is to accumulate more stock right.
Steel prices soaring, who will become the final winner?
May.22 MetalBiz--Recently, the prices of several kinds of raw materials mainly used in steel production rocketed. Iron ore price has rose up 321% since the end of 2003 and climbed 65% only in the year of 2007. The increment of coking coal price from 2003 to now is more shocking and has reached 582%, tripled compared with that of 2007. Steel scrap ran up 237% as well, doubled since 2007.
All these raw material prices rises pose huge pressure to the whole steel supply chains, especially to downstream enterprises. All steel plans, distributors and service centers are worrying about who will assume the tension of cost increase to undertake the drastic prices competition.
The final winner
The sharp rises of raw material prices brought another important impact, namely, the gap between those self-sufficient united steelworks and other plants that purchase raw materials from global market will become greater, which has never occurred before.
In the furious competition, upstream raw material producers have the most apparent advantages in a short-term as they have the product all need, which is also the main reason why they can promote the sharp rising of raw material prices. But it still exits one big problem for them, namely, how long will the gap between supply and demand last for? Some industry analyst believe the imbalance of iron ore supply and demand in international market will go on into 2012-2015 while some others think the gap will remove soon.
Other potential winner will be united steelworks, which can realize self-sufficiency of raw material including some steel makers in Russia, Ukraine and Eastern Europe such as Severstal, and Metinvest Group.
Potential loser
The potential loser will be those steel enterprises that cannot supply raw materials themselves or rely on global market. They are mainly some steel makers in Japan and South Korea.
Another potential losers will be those downstream companies that don¡¯t have strong competitive power. Anyway, there must be some firms to absorb the cost rises, including service centers, processors and steel users.
The last way out
Those steelmakers that cannot supply raw materials themselves should seize opportunities and aim at upstream enterprises. It is very important for steel companies to own or control raw material sources they need.
As these enterprises don¡¯t have formal futures facility to hedge their market investments, they must keep buying raw materials in open market, acquiring raw material companies or hedging through non-holding investment in them. Of course, another choice is to sell itself out when steel, metal and mining companies are transacting at the highest evaluation. As for downstream enterprises, the best method to avoid the wave of raw material rises is to accumulate more stock right.
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