Miners push raw material prices up

If reports are to be believed, we should brace ourselves for the arrival of high steel prices over the coming months. Talk of raw material prices rising by 70% - 90% in 2010 are being predicted as steelmakers conclude international annual negotiations with iron ore miners.

As an ongoing price war continues between major global miners and China, this week, steelmaker's rejected proposals to move annual contracts closer to spot prices. Spot prices are currently more than double the cost at which the annual contracts were settled in 2009. With spot iron ore prices reaching an 18-month high in late February 2010, miners seek a record price rise for the 2010-11 contracts due to start April 1.

Miners are predicting spot prices to remain high in 2010 as market conditions remain firm, warning they will struggle to meet demand, even running at full capacity. Demand for steel has doubled in China over the past five years. It is argued that their huge market growth has essentially disintegrated benchmark pricing suggesting that iron ore will follow suit of coal with a market based pricing system - eventually spot pricing will completely replace annual benchmarking.

Certainly this year, it is most likely miners will be less flexible on price. With strong demand from China, new ore export taxes in India and elsewhere blast furnaces re-opening, all evidence suggests prices will increase and steel construction industry will certainly be affected.

Iron ore suppliers seek to recoup from last year's price cuts to steelmakers as the global economy faced a major recession. This move is opposed by the steel industry on a whole, as the cost of steel will not only affect the construction sector, but affect many business to business (B2B) and business to consumer (B2C) sectors - the contract negotiations are vitally important for the entire global economy.

In the coming months, steel prices could see some significant price increases. For some it has already started, putting prices under pressure in an already fragile economy.

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