Steel prices set to climb on heels of deal

April 29, 2010 reports that global steel prices are set to increase by up to a third as miners and steelmakers agreed to a ground-breaking change in the iron ore price system. The new deal will raise the cost of anything that uses steel, including molds. The deal by Vale of Brazil and Anglo-Australian BHP Billiton with Japanese and Chinese mills marks the end of the 40-year-old benchmark system of annual contracts and lengthy price negotiations. The industry instead agreed to move to quarterly contracts linked to the nascent iron ore spot market.

The new system is in response to last year’s stalemate in the negotiations between miners and Chinese steelmakers, when both sides were unable to reach an agreement on annual prices. The balance of pricing power has shifted in the miners’ favor due to the emergence of China as a voracious consumer over the past 10 years.

The new price system will lift the cost of iron ore to Asian steelmakers to about $110-$120 a ton during the April-June period, up between 80% and 100% from the $60 level at which the 2009-2010 annual contracts were settled. Prices are expected to continue to climb over the summer, according to analysts.

Moldmakers contacted said they hadn’t really seen much of an increase yet. “We haven’t seen any increases yet, but I’ve heard this conversation,” commented Mike Armbrust of Mako Mold in St. Charles, IL, and president of the American Mold Builders Assn. “Comparatively speaking I think we’ll still see the increase, but at our volumes it’s more marginal.”

Bohler-Uddeholm Corporation, a supplier of mold steel with offices in Elgin, IL, has sent out letters to its customers regarding surcharges that will be rolled into the steel base prices effective May 1. The company noted that while it has absorbed increases imposed by its vendors over the past 15 months, these “significant increases in the costs of scrap, alloys, and energy,” has added to the costs to the point “where we have no alternative but to pass them on to our customers.” 

Bohler-Uddeholm’s scrap and alloy surcharges for its plastic mold steels range from 0.05 cents per pound to a high of 0.22 cents per pound on some types. 

Paul Britton, national sales manager for International Mold Steel in Florence, KY, says that he’s heard the same thing regarding the price of scrap and alloys. “Most of the mills around the world use scrap to produce new steel, so with scrap prices going up that affects all steel, and we’ll see scrap and alloy surcharges.” However, Britton projected that the industry wouldn’t see those surcharges until the third and fourth quarters.

Tim Peterson, VP of Industrial Molds Group in Rockford, IL, heard about the steel price situation and has already apprised his customers of the price increases in an effort to prepare them for a possible price increase in turn, but admits that “we haven’t really seen anything yet.”

AK Steel (Middletown, Ohio) issued a release on April 6 announcing a $420 per ton surcharge added to invoices for electrical steel products shipped in May 2010. Surcharges for the company’s stainless steel products were announced on the company’s web site. AK Steel’s surcharges are based on reported prices for raw materials and energy used to manufacture the products. Two days later (April 8), AK announced an increase in spot market base prices by $40 a ton “immediately for carbon steel products in response to increased demand for those products.”  —Clare Goldsberry

Comments (0)

Please log in or to post comments.
  • Oldest First
  • Newest First
Loading Comments...