Rising steel prices are a major risk factor for OEMs and automobile suppliers in 2005. SupplierBusiness.com interviewed Duncan Pell, Director Commercial Co-Ordination at Corus, about the issues involved.
Go deeper with GlobalData
Corus is one of the leading suppliers of steel to the European automotive industry, and last year made its first profit for several years on sales of about £7 billion.
What share of your output goes to the automotive industry?
One-third of what we sell to automotive goes via tier ones and tier twos, and two-thirds direct to OEMs.
What is the outlook for steel price increases in 2005?
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataWe have announced price increases in steel from 1 January of around 5%.
So spot prices will keep going up through 2005?
Yes, they may not go up as dramatically as they did in the mid part of 2004, where there was a lot of correcting and catching up to do, but we believe the general climate will be for further increases in 2005.
What are the major drivers for the ongoing increases?
We were hit throughout last year by rising raw material costs, iron ore, coal and scrap. We’ve seen in China not just a massive growth in steel making there, but also the switch from indigenous ore to imported ore, as their industry became more sophisticated and they commissioned high quality, integrated steel plants as good as anywhere in the world.
The sea-borne world trade of iron ore has gone up from just over 100 million tonnes in 2002 to 180 million tonnes in 2004, and there is no excessive stock hanging around in the system. In addition, freight costs for the vessels used for transporting iron ore increased by about 60% in 2004.
2004 is the first year for many years when the operational capacity of the steel industry has been pretty well fully occupied. That created an environment where we could seek to pass on these price increases, because there were less offers around, cheap material wasn’t available, and people were seeking out attractive markets.
We saw the level of supply into Europe from outside of Europe reduce in the mid half of 2004 as people who traditionally supplied Europe sought more profitable markets in the US, and Asia.
How are you coming out of that as a steel producer?
We have been able to achieve price increases with our spot business, the quarterly negotiated business, which brought some improvement in profit in the results we declared for the half year. But we’re moving prices from very low bases against the background of excess supply for many years in the industry. And we’re anticipating huge costs.
I think you have to differentiate between understandings about volume and fixed price deals. We all are in long term relationships in terms of the products we have developed and the expectations of supplying a volume over an extended period of time, but then within that you have price deals which range in term – the shortest for OEMs is one year and the longest, about three years.
Nissan in Japan experienced production shutdowns due to steel shortages last year. Are we likely to see more carmakers having to do that?
It’s very difficult to comment on what went on between steel makers and carmakers there, but I doubt it. I think there’s going to be tightness, and if people are looking to suddenly increase their schedules they will probably find that difficult. We are buying these raw materials and paying what we have to pay, and we’re keeping our customers in steel in line with plans that we have laid out with those customers.
The difficulty is where requests for extra steel from carmaker customers. I suspect that some steel makers in the early part of the year were hesitant given these incredible increases in cost, and therefore may not have produced as much as they had planned to produce.
Do you think higher prices will be sustained?
If you look at the drivers and the economic expansion of key regions of the world, the huge populations, and their need for consumer goods including cars, then one can predict that these higher levels of demand for steel worldwide will stay.
I saw figures recently which said steel consumption worldwide now is around 1.2 billion tonnes and is likely to rise over the next 10 years to 1.8 billion tonnes. So the scene that’s being set in 2005 looks to us to be a feature of our futures and not just a short term commodity move.
There might be a lot of attention on rising steel prices, but we always point out that they have been dropping since 1980, and because of what’s happened in the past year, prices are now only approaching the levels that they were back in 1980.
Steel prices have been trending downwards over that period, and in real terms have not yet caught up with where they were thirty years ago.
Do you expect more substitution of steel by other materials?
There is quite a lot of talk in the background about substituting steel for other products – it’s the sort of thing a buyer would naturally say. As far as we can see, other products are faced with similar drivers.
SupplierBusiness.com
