In line with the my post on Challenges before Indian Infrastructure Industry, the high and continued demand for steel from developing countries specially China has brought about a momentous change in the way steel industry buys its most important raw material, iron ore.
Below is the link and excerpt from the article published in FT on 31st March 10.
FT.com / Commodities - Steel prices set to soar after iron ore deal: "Steel prices set to soar after iron ore deal.....
The deal by Vale of Brazil and Anglo-AustralianBHP 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 balance of pricing power has shifted in the miners’ favour 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 tonne during the April-June period, up between 80 and 100 per cent from the $60 level at which the 2009-10 annual contracts were settled....
The steelmakers said they would compensate for the increase in raw materials costs by raising steel prices by up to a third. Some companies have already raised their prices in anticipation of the move in iron ore. The cost of the benchmark hot rolled coil steel is likely to hit $725-$750 a tonne by the end of next quarter, up from $550 in January. It traded as low as $380 a tonne last year...."
