Thursday, June 23, 2005
Steel Mills Trying to Regain Some Control of Input Costs
MEPS STEEL NEWS
Vertical integration by steel companies upstream into raw materials has not been given importance for many years. Long-term supply contracts with annual price adjustments were felt to be adequate to prevent shortages - especially as those price adjustments were often reflective solely of steel companies? ability to pay.
But now things have changed dramatically. Last year?s shortage of iron ore has made it a valuable commodity. And the three companies who now control more than 70 percent of supply are cashing in.
and nearer the end of the article
[...] iron ore investments are suddenly back in fashion. New iron ore projects in Australia, Africa and South America are being funded partly by steel companies. Some in the iron ore industry say this shows the market is working as they should – the price has risen in order to generate the funds needed to expand production capacity.
But the oligopoly of the Big 3 may not have done itself many favours by this year’s price hike. In the short term their profits will benefit, but long term they may lose market share. Diversity of supply used to be one of the basic principles of the steel industry’s raw material policy, and the mills’ new investments in iron ore seem likely to go increasingly into projects that will compete with the Big 3.
Vertical integration by steel companies upstream into raw materials has not been given importance for many years. Long-term supply contracts with annual price adjustments were felt to be adequate to prevent shortages - especially as those price adjustments were often reflective solely of steel companies? ability to pay.
But now things have changed dramatically. Last year?s shortage of iron ore has made it a valuable commodity. And the three companies who now control more than 70 percent of supply are cashing in.
and nearer the end of the article
[...] iron ore investments are suddenly back in fashion. New iron ore projects in Australia, Africa and South America are being funded partly by steel companies. Some in the iron ore industry say this shows the market is working as they should – the price has risen in order to generate the funds needed to expand production capacity.
But the oligopoly of the Big 3 may not have done itself many favours by this year’s price hike. In the short term their profits will benefit, but long term they may lose market share. Diversity of supply used to be one of the basic principles of the steel industry’s raw material policy, and the mills’ new investments in iron ore seem likely to go increasingly into projects that will compete with the Big 3.
