If we look carefully at the year so far, we realise that we are coming to the end of a year characterized by various dynamics. It is impossible to say that the general structure of the current market is similar to that of 2004. One very obvious difference is that,there is oversupply in
China today, contrary to the situation of two years ago. So far the global steel market is able to maintain current price levels despite the presence of low-priced Chinese goods. Briefly, the question that should be asked is, “What is the factor that keeps global iron and steel prices at higher levels despite the excess of supply coming from the world's largest steel producing country?”
Answering this question by supply-demand fluctuations or seasonal market conjunctures is impossible. When we look at the price indexes for long and flat products over the last four years, (for instance if we compare the 2006
HRC price with the
HRC prices starting from 2002), we see an increase of 65-75 percent. With regard to long products, (for instance
rebar, debar and
wire rod), we see an increase of 50-70 percent over the last four years. People in the sector may get the impression that growing demand in the steel industry is reflecting itself as a price increase; however, although steel
consumption per capita throughout the world is following an upward trend, it is impossible to explain these numbers in such a way.
People are reluctant to express predictions with precise details for any sector. When asked what kind of future awaits us regarding general price levels, I personally tend to turn to similar examples in other industries.
OPEC, which controls the majority of oil reserves in the world (over 55 percent), has gradually increased oil prices from $25 per barrel on September 11, 2001, to $70 per barrel lately. (As OPEC has recently increased oil prices many times, it hiked oil prices significantly in the past due to factors such as the general oil price level, wars and revolutions). When hiking prices, what OPEC relies on is the fact that as long as there is no replacement for oil in the world, it will be in an advantageous position since it owns the majority of the oil reserves. The fact that producers are unwilling to withdraw their prices, quickly adapting themselves to new profit margins after every price hike is a big handicap for the countries, including
Turkey, which have to import oil. Alas, I don't think that anybody expects oil prices to be at $30 per barrel ever again.
When we look at the iron and steel industry today, we see different actors playing according to the same scenario. CVRD,
BHP Billiton and
Rio Tinto, who between them hold 75 percent of the world's
iron ore, have hiked
iron ore prices by 125 percent since 2000. (The
iron ore price, which was at $28/mt in 2001, is now at $63/mt). Indeed, CVRD declared that in the period in question, copper prices had increased by 500 percent, and went on to claim that in comparison their own
iron ore price hike was insufficient.
I think these three producers are responsible for prices hovering at higher levels in general.
While these three
iron ore giants are happy with rising profit margins due to the advantage of holding a monopoly, I think that except for slight price drops, we should see price levels such as those at $290-300/mt for hot rolled coils in 2003, for instance, as a page from history.
Gorkem Bolaca
Foreign Trader
Tezcan Galvaniz