Steel price rise stokes inflation concerns

The price of steel has risen more than a third in two months, adding to global inflationary pressures as food and energy costs are also soaring.

Floods in Queensland have severely disrupted global supplies of coking coal, a major steelmaking ingredient, prompting a scramble among manufacturers to stock up on steel.

That has pushed the price of benchmark US hot-rolled coil steel 37 per cent higher since early November to a two-year high of $783 a tonne, said CRU, a consultancy.

Spot cargoes of coking coal have traded as high as $350 a tonne – up 55 per cent from quarterly contracts agreed at $225 just a few weeks ago.

Iron ore, the other major ingredient in steel, is rapidly rising towards record high prices, with benchmark grades delivered to China up 20 per cent since the start of November at $178.30 a tonne.

“The Queensland floods are giving a shot in the arm to steel prices. People are scrambling to get supplies,” said Ralph Oppenheimer, executive chairman of Stemcor, a steel trading company.

The Australian state accounts for more than 50 per cent of coking coal supply to the global seaborne market, on which steel mills in Asia, and to a lesser extent, western Europe rely.

The jump in steel prices is likely to add to concerns over rising inflation, coming as oil is flirting with $100 a barrel for the first time since 2008 and food prices have risen to a record high, according to the UN Food and Agriculture Organisation.

While changes in the price of steel have less immediate effect on consumers than moves in energy or food commodities, the $500bn-a-year steel market is crucial to the global economy as it is the single most important raw material cost for many everyday goods.

Inflation is rapidly becoming a dominant concern for policymakers in emerging economies, especially in Asia. China on Friday raised banks’ reserve requirements in its latest attempt to rein in prices, while South Korea’s president has declared an “all-out war” on inflation.

But prices are also beginning to rise in the west: the European Central Bank warned of rising inflation last week, and inflation has ticked up in the US.

Analysts and executives expect steel prices to rally further on the back of continued rises in raw material costs.

Although global steel demand is not as strong as it was in 2008, traders and analysts said that prices could spike to record levels if Australia’s heavy rains continued to disrupt coking coal supplies, forcing steelmakers to cut production.

“Steel prices could easily rally further still as mills begin turning down output,” said Melinda Moore, commodities analyst at Credit Suisse.

The Australian Bureau of Meteorology has warned that the unusually wet weather in the north of the country is likely to continue until April.