Bloomberg  3 min ago  Comment 
The cost of shipping iron ore jumped the most on record amid speculation that Chinese traders are increasing purchases of the raw material used in steel.
Reuters  56 min ago  Comment 
The U.S. Department of Commerce will terminate a 15-year-old deal sheltering Russian flat-rolled steel producers from high import duties, it said in a letter to Russian...
The Hindu Business Line  11 hrs ago  Comment 
Metal sector shares maintained their firm undertone on the NSE on Tuesday. At 3.15 pm Jindal Steel had built up gains of 7.12 per cent. The stock was trading at ₹145.15 as against ₹135.50 at close...
Reuters  12 hrs ago  Comment 
The BSE Sensex and Nifty rose for a third straight session on Tuesday to mark their highest close in 1-1/2 weeks as coal-related stocks such as Jindal Steel and Power surged on the government's plans to auction coal blocks the top court cancelled...
Reuters  Oct 21  Comment 
Reuters Market Eye - Tata Steel gains 1.6 percent. China's economy grew 7.3 percent in July-September, slightly above expectations.
Reuters  Oct 21  Comment 
Reuters Market Eye - Jindal Steel and Power Ltd gains over 7 percent, while Hindalco Industries Ltd is up 1.4 percent. India said on Monday it would auction off coal blocks after the Supreme Court cancelled allocations in August.
The Economic Times  Oct 21  Comment 
In the first round, blocks would be auctioned to companies that will use the coal for firing power, steel and cement plants.
Commodity Online  Oct 21  Comment 
The initiative is to boost the investment on Research and amp; Development in the steel sector from present level of 0.2-0.3 % of turnover to international benchmark of 1-2 % of turnover by the leading companies.
Finance Asia  Oct 20  Comment 
China’s second-biggest steel producer raises its first dollar-denominated bond, boosting its warchest amid thirst for global expansion.
The Hindu Business Line  Oct 20  Comment 
The stock of Jindal Steel & Power (JSPL), which plunged almost 14 per cent to a low of ₹128 to start with, has lost 9 per cent,after the Central Bureau of Investigation filed an FIR against th...




 

Steel is a major input in the construction, shipbuilding, automobile and oil industries. Although the U.S. and Western Europe were largely responsible for the initial development of this industry, since about 1970, China has become a major force in the steel industry. Chinese steel production has grown from 13% of world steel production in 1995 to 32% in 2005. However, China's demand for steel has grown just as fast, and it remains a net importer of steel.

The cost to produce steel varies from country to country, largely with the cost of raw materials, as well as labor and energy. Russia, India, Ukraine, Brazil are able to produce steel at the lowest cost because of a combination of cheap energy and labor. The US's costs are roughly middle of the road. Unlike many other commodities, China is not the lowest-cost steel producer. Chinese labor is cheap, but energy in China is still pricey. As a result, China produces steel at a cost 20% below that in the US, but energy costs in China are higher than they are in Russia, India, Ukraine, and Brazil.

Economic growth across the globe in 2007 and early 2008 spurred a rise in construction activity - steel prices rose. As the 2008 Financial Crisis worsened in late 2008 and early 2009, global demand for steel fell while new steel production capacity was coming into the market - steel prices fell. On May 18, 2009, global steel prices fell to a six-year low.[1]

It should be noted that the majority of steel is utilized by a fairly limited number of purposes. For example, in the United States eight industries consume over 90 percent of the steel used.[2] In North America 2/3 of steel fabricated for consumption is recycled from previous uses.[3]

Prices, Tickers, and Delivery Dates

Steel prices can be quite volatile, moving plus or minus 30% or so through the steel cycle. A typical steel cycle lasts approximately 2-3 years (peak to peak) and this volatility adds significant risk to a steelmaker's revenue stream.

Steel Futures contracts are traded on the New York Mercantile Exchange under ticker symbol HR and are delivered every month of the year. (For more information on commodity tickers, check out the commodity ticker construction page.)

Graph to come.

What Impacts Steel Prices?

Error creating thumbnail
How US steel makers are impacted by a $20 / ton increase in steel prices. Nucor and Dynergy's contracts with customers that fix their margins mean they are less exposed to price fluctuations than US Steel is.
Error creating thumbnail
China represents nearly a third of global steel consumption
Error creating thumbnail
China represents nearly a third of global steel production
  • Economic growth in general drives greater production and construction, activities that consume steel. As the global economy began slowing down in 2008, steel prices fell by almost 50% in the six months after July, after having nearly doubled in the six months before.
  • New construction: Twenty percent of steel is used in construction. As a result, a key metric to watch to forecast future steel prices is property vacancy rates -- higher vacancy rates leads to less construction and lower demand for steel.
  • Foreign demand: China's prodigious consumption has made it a net importer of steel. Fifty percent of China's GDP is spent on fixed-asset production -- things like roads, railways, bridges, and buildings -- compared to only 17% for the United States.[4] However, China's increasing self-sufficiency could displace imports and lead to price drops.[5]
  • Capacity: Increased capacity to produce steel signals lower prices in the future. As a result, capital spending by steel producers is often used as a harbinger of future steel prices - more capital spending today suggests more factories, more capacity and therefore lower prices in the future. Consolidation (steel companies buying each other or going out of business) suggests steel will become less plentiful and therefore more expensive. From the 70s to the turn of the century, production capacity rose at an annual rate of .6%.[6]Then, both undergoing and expecting rapid growth, steel companies increased capacity at more than 7% per year. As demand and demand forecasts began to fall in 2008 and Q1 09, the world was left with 300-400 million metric tonnes of unused capacity.[7]

Companies that benefit from rising steel prices

US Steel, Nucor, and Steel Dynamics are the largest American steel producers. When prices rise, they make more money on every ton of steel they sell. US Steel benefits more from rising steel prices than Nucor and Steel Dynamics, however. Nucor and Steel Dynamics' pricing strategy is to sign adjustable-rate contracts, where the price they are paid varies with the price of inputs such as scrap steel. This means their profits are reliable when prices fall, but means they have less upside when prices rise.

US steel is far more exposed to steel prices than Nucor and Steel Dyanmics. Nucor and Steel Dynamics' strategy has been to lock in spreads in long-term contracts with customers -- the companies pass along increases in raw material costs to their customers, but have limited upside when steel prices rise. Smaller steel producers, such as AK Steel Holding (AKS), Commercial Metals Company (CMC), and Carpenter Technology (CRS), are also beneficiaries of rising prices, although obviously in proportion to their relatively smaller market share.

Steel companies aren't the only parties that benefit from higher steel prices. The companies that provide them with steelmaking raw materials, such as the major iron ore supplier Cleveland-Cliffs (CLF), enjoy the rise in profits as well. Similarly, companies like Harsco (HSC) that provide the steel industry with mill services benefit as well.

Finally, steel traders tend to work off margins of a few percentage points of the selling price of steel. This means that steel trading firms such as Balli Group, Duferco, Stemcor and Salzgitter tend also to benefit from rising steel prices.

Companies that benefit from falling steel prices

  • Gas and oil firms such as Gazprom and Transneft that use steel pipe to distribute the oil and gas. These firms often invest in international, transnational or sub-sea pipelines to transport these fuels to their end-use markets - pipelines that can be hundreds or even thousands of kilometers in length. Given that a one meter length of oil or gas pipeline can weigh near to one tonne - with the pipe costing perhaps $1000 per tonne or more - the cost of welded pipe for a major pipeline can often run into billions of dollars.
Top ten world steel producers, 2005
Rank Company Country Steel output (mt) % of world production
1 Arcelor-Mittal Luxembourg 120 10.6%
2 Nippon Steel Japan 34 3.0%
3 JFE Japan 32 2.8%
4 POSCO South Korea 31 2.7%
5 Shanghai Baosteel China 24 2.1%
6 US Steel US 22 2.0%
7 Nucor US 20 1.8%
8 Corus Group EU 19 1.7%
9 Thyssen Krupp EU 17 1.5%
10 Riva Acciao EU 17 1.5%

Top 10 Steel Producers in year 2007

Company Country Production M.Ton
ArcelorMittal (Global) 116.4
Nippon Steel (Japan) 35.7
JFE (Japan) 34
POSCO (South Korea) 31.1
Shanghai Baosteel Group Corporation (China) 28.6
Tata Steel (Global) 26.6
LiaoNing An-Ben Iron and Steel Group (China) 23.6
Shagang Group (China) 22.9
HeBei Tangshan Iron & Steel Group (China) 22.8
United States Steel Corporation (United States) 21.5
Wikinvest © 2006, 2007, 2008, 2009, 2010, 2011, 2012. Use of this site is subject to express Terms of Service, Privacy Policy, and Disclaimer. By continuing past this page, you agree to abide by these terms. Any information provided by Wikinvest, including but not limited to company data, competitors, business analysis, market share, sales revenues and other operating metrics, earnings call analysis, conference call transcripts, industry information, or price targets should not be construed as research, trading tips or recommendations, or investment advice and is provided with no warrants as to its accuracy. Stock market data, including US and International equity symbols, stock quotes, share prices, earnings ratios, and other fundamental data is provided by data partners. Stock market quotes delayed at least 15 minutes for NASDAQ, 20 mins for NYSE and AMEX. Market data by Xignite. See data providers for more details. Company names, products, services and branding cited herein may be trademarks or registered trademarks of their respective owners. The use of trademarks or service marks of another is not a representation that the other is affiliated with, sponsors, is sponsored by, endorses, or is endorsed by Wikinvest.
Powered by MediaWiki