Steel, China and Safes

   Instability of prices on ferrous metallurgy products and in particular on steel is a usual detail of the world market. Recession and upsurge periods replace each other each 3 or 4 years. The previous peak of steel prices in the world market fell on 1997. Then price-cutting occurred and by the end of 2001 they reached the minimum level (55-58% of 1997 level). 2002 year witnessed rising of prices and by the end of 2002 world prices on cold-rolled steel index increased for 40-45%. Then price rising reduced and during 2003 year prices increased for 8-9% and almost returned to the level of 1997.
   At the beginning of 2004 year prices on steel just "gone mad". At least such definition was used by analytics of English "MEPS International" company that specializes in steel market analysis for more than 25 years. In the middle of March, 2004, just for the period of time of two months and a half prices on different types of rolled metal rose from 16% for rebar to 68% for hot-rolled steel plate. In such conditions many metallurgical works limited their supplies to the customers because it was quite evident that after a week or two they would sell their produce at a higher price and earn additional 10-20 USD per ton. Producers all over the world announced new scaled rise of prices in the second quarter of 2004.
In prevailing view the main reason of sudden price rising on steel is a fast growth of steel manufacture in CPR (China). Rapidly developing economy of China consumes more and more of ferrous metallurgy produce. For the last 15-20 years world market prices depend above all upon steel consumption in China. There is an excess of production capacities observed in the field of ferrous metallurgy of developed industrial countries such as USA, countries of Western and Eastern Europe, CIS countries, Japan and Brazil. For many of the factories, especially for those of ex-USSR countries export of the produce to China was almost the only possibility to survive in the conditions of competitive struggle. But beginning from 1997 steel production in China doubled and by 2003 year CPR produced 220,1 million tons of steel. It made up 22,8% of the whole world steel production volume that was 964,2 million tons. For reference, Japan produced 110,5 million tons, USA - 90,4 million tons, Russia - 62,7 million tons and South Korea - 46,3 million tons of steel. CPR's estimated steel production in 2004 would make up to 265 million tons.
   In order to supply its own metallurgical works with raw material China had to multiply import volume of iron ore, scrap metal and coking coal. World merchant navy, which tonnage reduced in the past years doesn't cope with the increased volume of sea shipping. The inner transport infrastructure of China (network of railway lines and ports) also failed to provide all necessary shipping operations. Besides, China being the world's first-rate exporter of coke and cast iron for the last years practically stopped their supply to the world market.
   World shortage of raw materials for steel production led to the sudden price rising. From the beginning of 2004 year producers' expenses for iron ore grew up for 18-20%, as for coking coal it reached the level of 15-35% and for coke as one of its products - by 3 times. Prices on scrap metal doubled. As a result metallurgists roused prices on steel and in some cases were forced to decrease volumes of steel production in order not to incur losses.
   Russian ferrous metallurgy joined the world market long ago. More than a half of its production was exported in 2003. Prices of the Russian market are also directly connected with the world market's ones. So, Russian wholesale market prices on cold rolled steel plate were even higher than average prices in the world market in the second part of 2003.
   Price rising of the Russian market begun a little bit later than it occurred in the West, but nevertheless it was not less sudden. As it is stated by www.metaltorg.ru, a composite index of Moscow ferrous metals market increased for 41% just in the course of 2 months (06.02.04 - 02.04.04) and continues to grow.
   Rise in prices is occurring not only in the wholesale market, but it also touches producers and their first-rate clients that are operating by long-term agreements. As a result only in March, 2003 such gigantic companies as "GazProm" and "AvtoVAZ" among other huge oil companies, representatives of building industry and car producers directed their appeal to the Government of Russian Federation concerning setting up of an export duty on steel at the value of 30% and limitation of price rising on metal-roll in 2004 by the level of 15%. Till now all these appeals are shelved. According to some prognosis total price rising on metal-roll in Russia can make up to 70% in the first six months of 2004 year.

   Source: www.safe.ru