News Room - Steel Industry

Posted on 01 Apr 2010

Europe, Asia Steelmakers to Raise Prices on Ore Costs

European and Asian steelmakers will raise prices because of surging iron-ore costs after Vale SA, the world’s largest producer of the raw material, and BHP Billiton Ltd. ended a 40-year system of setting annual prices.

 

Eurofer, a group representing steel producers in Europe, said a shift to quarterly contracts for iron ore along with higher prices for coking coal may push up costs for their customers by as much as a third.

 

“It’s going to create a great deal more volatility in prices,” Eurofer Director-General Gordon Moffat said in a phone interview today. “Steel producers will have to pass these rises onto the consumers.”

 

Margins at steel companies, still recovering from the worst slump in demand in six decades, will be squeezed after Brazil’s Vale won a benchmark 90 percent increase from Sumitomo Metal Industries Co. for the quarter starting today. BHP, the world’s biggest mining company, said it will sell most of its output to Asian mills on shorter-term contracts.

 

Vale’s agreement “is likely to become the industry benchmark,” said Jayant Acharya, director of marketing at JSW Steel Ltd., India’s third-largest steelmaker. “We will raise steel prices but have yet to decide by how much.”

 

Producers of the metal will, in turn, force automakers to abandon their annual supply contracts, making car prices more volatile, Moffat said.

 

“The winners in the short term will be the miners,” said Colin Hamilton, an analyst at Macquarie Group Ltd. “The losers are probably the ones that haven’t adapted their systems to this change. I would suggest some of the European steelmakers.”