Archive

Posts Tagged ‘Mittal’

Arcelor raises steel price; Nippon steel faces higher costs

July 28, 2010 Comments off

“ArcelorMittal, the world’s largest steel maker, said it is going to increase its prices for steel by 10% this year, even as it expects steel demand to weaken throughout most of the world.

‘We need a 10% price increase for spot business in order to replicate our profit level in the second quarter,’ said Chief Executive Lakshmi Mittal.”

Source: Wall Street Journal, July 28, 2010

“Nippon Steel Corp. said Wednesday that a rebound in steel demand, particularly in Asia, pushed it back to the black in its fiscal first quarter, but soaring iron ore and coal costs ate into its profitability and are clouding its earnings recovery prospects. …

Nippon Steel is not alone in contending with high input costs. JFE Steel Corp., Japan’s No. 2 steel maker, on Tuesday also reported its net profit fell 41% from the previous quarter.”

Source: Wall Street Journal, July 28, 2010

Observations:

  • Change in pricing system of iron ore has allowed miners to pass on price increases to steel makers. As many steel makers have fixed prices with customers in medium term contracts, profits are reduced by the increase of raw materials that can not be passed on to customers immediately.
  • Only last month various steel makers warned for steel price reductions because of the threat of overcapacity in the industry. At the same time, warnings for increasing steel price volatility appear to become reality, as long term price contracts are replaced by spot price-based pricing.

Implications:

  • Many competitors of Arcelor Mittal will follow in increasing steel prices. As the construction industry is recovering from the crisis, increasing prices will impact demand heavily, causing output levels to fall and overcapacity to increase further. Therefore, the steel price increase can be expected to be short-lived.
  • Increasing seaborne iron ore prices mainly impact steel makers that are not vertically integrated. Arcelor Mittal is hit less than other Indian producers as they are pursuing upward integration aggressively and are less dependent on seaborne trade from Australia than Nippon Steel and many Chinese companies.

©2010 | Wilfred Visser | thebusinessofmining.com

Steel Prices Under Pressure

June 1, 2010 Comments off

“The world’s steel mills are ramping up production so quickly that prices in some markets are expected to fall 5% or more in June, and inventories are growing.

Mills in China, the biggest driver of global steel prices, and Eastern Europe are churning out record amounts of steel. The surging output comes amid signs that the world’s economies may not be on a strong upswing, prompting worries that supply will outpace demand and restrain prices just as they were beginning to rise.

‘The possibility of overproduction in the market is a concern,’ said Lakshmi Mittal, chief executive of ArcelorMittal, the world’s largest steelmaker.

Annualized global steel output, based on a record April, is expected to climb to 1.5 billion metric tons from about 1.25 billion metric tons in 2009. At the forecast 2010 rate, output will exceed consumption of 1.3 billion metric tons, according to the World Steel Association.”

Source: Wall Street Journal, June 1 2010


Observations:

  • According to the world steel association, capacity utilization of steel mills is up to 80%. The increased supply of steel is preceeding an increase in demand.
  • Economists warn for an iron ore price bubble (FT, May 31). Prices are rising much faster than mining costs in the past months.

Implications:

  • For mining companies, the accelerated ramp-up of steel production is a positive development. Miners can ramp up production profitably quicker, and will thus be prepared for a potential new demand surge from China and India.
  • Oversupply might reduce steel prices in the short term and will dampen price increase in the medium term, but will quickly be forgotten if demand picks up as expected.

©2010 – thebusinessofmining.com

Mittal says rise in ore price will cause steel ‘volatility’

April 30, 2010 Comments off

‘Laksmi Mittal warned yesterday that the impending large rise in the cost of iron ore would lead to “new volatility” in the steel industry by pushing up prices of the metal – a development, he said, that could harm the competitiveness of some ArcelorMittal European plants.’

Source: Financial Times – April 30 2010

Observations:

  • The benchmark system for iron ore pricing is being replaced by a more flexible quarterly pricing mechanism linked to the spot market. The reduced certainty on iron ore purchase prices for steel makers will cause similar uncertainty in the price of their output.
  • Steel makers are looking for various ways to reduce the new risk they are encountering. The most important will be to pass price increase on to customers, increasing steel prices globally.

Implications:

  • Reduced certainty on price of iron ore will impact investment decisions for both iron ore miners and steel makers, forcing them to adjust the time value of money in project valuation.
  • Steel makers will increasingly opt for vertical integration, trying to secure a stable raw material base.