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World Steel Association expects record 2010

October 5, 2010

“Stronger-than-expected increases in steel demand in Europe, Japan and the former Soviet Union are propelling the global steel industry to a robust recovery this year, according to forecasts released by the World Steel Association. The association – the main trade body for the sector – said on Monday that global consumption of the metal would increase by 13.1 per cent in 2010 to a record level, above a forecast of 10.7 per cent made in April.

Next year demand for all grades of steel – the most widely used industrial material, which goes into a range of sectors from cars to toy manufacturing – is likely to rise by a more modest 5.3 per cent to hit a fresh record of 1.34bn tonnes.”

Source: Financial Times, October 4 2010

Observations:

  • Last week both the CEO of ThyssenKrupp and the head or the iron ore division of Vale announced similar expectations about the demand for iron ore. Vale expects the price of ore to remain high, although analysts expect the price to drop by approx. $15/t.
  • In June of this year various steel producers warned for potential overcapacity in the industry, caused by low growth expectations for China. However, most steel makers have gained confidence that the risk of a double dip recession is limited.

Implications:

  • This year’s change of the iron ore pricing mechanism to a system linked to the spot price of the ore is an incentive to business leaders to try to influence the spot price. Published expectations on the demand and supply of ore and steel by various companies can be seen as part of the game of influencing the price and the strategy of suppliers and customers.
  • The effect of announcing high demand expectations by steel makers works in two directions: it is a signal to the mining industry to step up production, which causes price of ore to drop in the long run; at the same time it might increase the price of ore in the short term as demand drives the price up.

©2010 | Wilfred Visser | thebusinessofmining.com

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