By David Wagman, Chief Editor, Power Engineering magazine
Steel prices could jump by one-third in the coming months after miners and steelmakers agreed March 30 to revamp how iron ore prices are set. The news comes from the March 31 Financial Times newspaper.
What happened is that a 40-year-old benchmark system of annual contracts and negotiations has been replaced by quarterly contracts linked to spot market prices. Demand in China for steel seems likely to be driving spot markets. So long as that demand remains strong–and forecasts call for around a 10 percent rate of growth for the country–the commodity price will likely remain high.
The newspaper reported that the cost of iron ore to Asian steelmakers could rise to around $110 to $120 a ton during the April to June quarter. That would represent an 80 percent to 100 percent rise from the $60 a ton, which prevailed for 2009 annual contracts.
Higher costs are likely to be passed on to consumers, which would include everyone from wind turbine tower builders to nuclear power plant constructors and ordinary consumers.
The Dallas Federal Reserve Bank publishes a weekly update on economic indicators, including commodity prices. Slide 35 shows recent trends in commodity prices, including the dramatic drop during the recession and recent recovery.
Implications of the new deal on iron ore could be huge for companies looking to use steel for almost any type of capital project.
