At the 6th SteelOrbis Turkish Steel Market Conference, held in Istanbul on November 18 with the sponsorship of Turkish integrated steelmaker Erdemir, Şevkinaz Alemdar, Erdemir Group's central purchasing manager, assessed the pricing dynamics faced by the steel industry, both globally and locally.
According to Ms. Alemdar, the main factor determining steel prices is raw material prices, which have skyrocketed in the period after the year 2000, at a far faster rate than steel prices. Ms. Alemdar stated that there are four main reasons for the rise in raw material prices. First of all, as she said, just three companies control over 60 percent of the global iron ore trade, while as regards metallurgical coal six companies control more than 55 percent of the global metallurgical coal trade; a situation which is unlikely to change in the medium and perhaps also in the long term.
Secondly, Ms. Alemdar underlined that raw material supplies and demand levels are so close that even the slightest movement in one of these can result in significant price changes. As an example, this year the Indian government banned iron ore exports from the Karnataka region, a move that affected only 20 million mt. However, the price change arising from this development was unproportionally high. A similar example is seen in metallurgical coal prices, as prices rose significantly after the floods observed in Australia.
A third reason, according to Alemdar, is the scarcity of raw material supply regions. Finally, China's growing demand, which accelerated after the year 2000, is maybe the main reason for the increasing raw material prices. China's share in the global iron ore trade had reached 60 percent by 2010, compared to 15 percent in 2000, while its share in the metallurgical coal trade reached 14 percent by 2010, as its self-sufficiency in metallurgical coal is far higher than for iron ore.
For these reasons, between 1995 and 2011 the total price of raw materials, including iron ore and metallurgical coal, increased by six times, while average steel prices have risen by 2.5 times in the same period since competition is stronger in the steel industry, where the top 10 steel producers in the world account for 30 percent of the total global steel output.
In addition, the raw materials industry is now working with short-term contracts, for periods of one to three months, and this has resulted in increased volatility in the market.
Finally, Ms. Alemdar stated that in Turkey flat steel production has reached 19 million mt, and, when 5 million mt of imports are added total supplies exceed the annual domestic flat steel consumption of 16 million mt. Therefore, Turkish flat steel producers are now focusing on export markets, especially Europe.