Cost pressures mount amid supply squeeze

摘要

Steelmakers are facing a significant escalation in production costs as supply pressures mount for raw materials. No commodity has been spared from the Chinese inspired explosion in demand, which has seen rapid increases in spot prices for iron ore, coking coal, coke and pig iron. With record freight rates thrown into the mix, mills will be under intense pressure to increase prices if margins are to be protected. Indeed there is intense competition as to which of the key raw materials is tightest at present. Certainly, iron ore has a strong claim with spot prices fob India leaping by 30 percent since last month. Delivered prices into China are now way above the previous record that lasted for a brief period in early 2004. With Chinese demand stronger than ever, supply has simply been unable to cope. While government measures and adverse weather have hit supplies within China, the key supply constraints are in Australia and Brazil. These seem unlikely to ease significantly in the near term raising the possibility that Chinese steel output may become constrained by a lack of hot metal.