He Said, She Said: Why Steel Prices are Rising

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Ferrous Metals, Supply & Demand

Last week I had a chance to pour over our blog statistics. And, we’re happy to report that traffic is steadily growing. But what I really like to track is what people are reading….what gets a lot of visitors and what doesn’t. So it will likely be no surprise that you all are reading everything and anything that has to do with ‘pricing’. Whether it is copper, metal prices in general, steel or aluminum, our top 30 pieces of content are mostly comprised of price trends. We’re also happy to know that some of our more outrageous and silly articles are equally well-read such as Amy’s biking mishap, my Iron Man prototype suggestion and Stuart’s “urban mining” piece.

And though it is a lot more fun to write the lighter pieces, I thought a light intro into a controversial topic might make for good reading as we prepare for the long holiday weekend.

So here is the topic: Why are steel prices so high?

Basic question but oddly enough, a lot of finger pointing is one answer. If you ask the CEO of Nucor, Dan DiMicco, he will tell you, “Iron ore is up several hundred percent, scrap prices are $600 to $700 per ton, pig iron is $900 ton and coal is rising several hundred percent even as we speak,” according to this recent article. Almost every single steel producer also sites rising demand, “Consumption growth is rocketing to 5 to 7 percent per year and it is being driven by a demographic of 2 to 3 billion people in a world that wants a better standard of living,” DeMicco continued. And according to ArcelorMittal CEO Lakshmi Mittal, “the world may be facing steel shortages for the first time in decades owing to accelerating demand.”

Big Steel Says: High prices are due to demand and spiking raw materials

If you talk to the raw material producers like managing director of BHP Billiton, Marius Kloppers, he recently said, “Very high steel costs have been driven almost entirely, certainly in majority, by constraints on steel-making capacity, tightness in steel-making capacity and not raw material costs” (I really encourage you to click on this link just so you can see the title of this article) In that same article, Marcus Randolph, BHP’s chief executive of its ferrous and coal business said, “raw material costs in the production of the steel industry’s benchmark product, hot rolled coil, had not changed from about 35% of the total cost.” No commentary from the MetalMiner peanut gallery.

Raw Material Producers Say: It’s demand and constraints on steel-making capacity (and NOT raw material costs)

And the truth? Well, the truth, as in life lies somewhere in the middle. Suffice it to say that raw materials likely make up over $500 per ton of steel produced. (So much for BHP’s claims) But we believe steel makers have a close eye on capacity and have idled plenty of lines to keep steel prices high.

All of this discussion leads us to the next question, why are the steel producers so very much against the formation of Nymex’s steel HR contract? We’ll take a look at this as well. [Hint: it has something to do with controlling pricing]!

–Lisa Reisman

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