As indicated in the two accompanying graphics, which compare the month-to-month changes of hot-rolled band prices on the world market and in the United States, the inherent price volatility in the system has risen exponentially, especially since 2002, when rising Chinese steel production began to “change the game” for international steelmakers. The “cardiac arrest” condition also applies to the prices of steelmakers’ metallics (iron ore, pig iron, steel scrap and steel scrap substitutes) and coking coal.
The recent $100+ per tonne rise in the price of coking coal, FOB Australia - with the Japanese steel mills paying $200 per tonne for the fourth quarter of 2016 - will add to the factors promoting near-term steel price volatility. Interestingly, perhaps the last thing that’s driving prices on a near-term basis is changes in global steel demand. Huge swings in steel market psychology – with the marketplace being psychological warfare between buyers and sellers – are driven by fear and greed.
What’s the solution for those who must buy and sell these products? First, learn to take advantage of these swings before and/or just when they are starting to happen. Second, look forward to the day when liquid steel futures curves permit all players to hedge the steel price risk.
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