The capricious course of the steel prices

The present financial crisis is keeping the international markets under the spell for some time now. The cause of this worldwide depression is to attribute to the outbreak of the 2007 real estate crisis in the United States. The banks have done a wrong assessment by granting 100% “stated-income” mortgages in large numbers where the applicant could give up his income without providing any proof for this. When the economy slowed down, a lot of families were unable to pay off their loans. Immediately a knock-off effect was created which put the banks in a difficult position. As a result, some big financial services firms went bankrupt which lead to the worldwide impasse.

As a consequence of this, the confidence with the investors was completely gone. The quotation on the stock exchange markets dropped significantly and the economy wasn’t spared either. Ever since it is extremely difficult to make forecasts for the future evolution of the markets. There were some flickers, but as soon as bad news was announced, the lead was nullified.

The financial crisis was accompanied by a shock wave of suspicion which lead to a worldwide regression of the economy. By the end of 2008 the demand for steel collapsed, dragging the steel price along to an absolute low.

Difficult price negotiations

Early 2009, the steel prices reached their lowest point. Due to the worldwide closure of several blast-furnaces, the steel manufacturers tried to search for a balance between supply and demand to become a steady steel price.

By the end of 2009, price increases were the trend. In the first quarter of 2010 the transport and iron ore prices recovered. Both are very important to determine the cost of steel products. It is to ascribe to this that the steel prices increased this much in the second quarter of 2010. There exist considerable differences between the Western and Asiatic countries in the demand for steel products. While the West can’t climb out of the recession, Asia is on the other hand a rising economic power.

Moreover, there are only 3 considerable manufacturers who supply steel : Rio Tinto, Vale and BHP Billiton. This monopolistic situation will increase the steel prices in the 3rd quarter of 2010.

Overall, the expectations are that the steel prices will increase for the European market. This is a consequence of the price negotiations between the iron ore (the raw material of steel) mining groups and the steel manufacturers. Worldwide, there are only 3 big mining groups who exploit iron ore : Rio Tinto, Vale and BHP Billiton. Because of the few suppliers, the market is liable to strong fluctuations.

The Asian steel manufacturers and the leading mining groups failed to conclude new contracts and as a consequence the price for iron ore was maintained for at least one year. This system was applicable for 40 years, but the increasing Asian steel demand put the mining groups in a strong position.

This spring however, the deal showed some cracks when a Japanese steel manufacturer agreed on terms with a few mining groups, followed by other players in the industry. The deal includes new quarterly price negotiations. It goes without saying that extra nervousness is created because there are big differences in the demand for steel. The European economy took a severe blow for the crisis and as a result the demand for steel has dropped significantly. By contrast, the Asian economy is still demanding for more steel (for the production of cars, industrial buildings and household appliances...). Because of this, China is in particular a very large customer for steel and because of that the crisis doesn’t affect the mining groups.

Climbing or dropping ?

Should the price of iron ore increase dramatically (some say up to 30%) it seems logic the steel manufacturers will adjust their prices. This deal can have an impact which could be noticeable for the end user. All products based on steel (cars, hangars, steel constructions,…) could become more expensive. The Asian steel manufacturers can adjust their prices more easily because of the booming economy. But in Europe things are different, the crisis is still fresh in the mind and thus investors keep very cautious. Anyway, price-rises are always a difficult case.

The course of the steel prices are similar to a ride on a rollercoaster, blindfolded. You know it will go up and down, only not when and with which intensity.

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How did Frisomat anticipate on these events?

Over the years, Frisomat always kept a large stock of cold rolled steel. That’s why Frisomat could deliver an hangar at the best possible price. In a year, the base material price has risen up to  18%, while the demand for steel constructions has dropped. In times of crisis, quality and service are less important, but price is the most important argument to invest in a hangar.

High or low steel prices, your industrial building will always be of the best quality !