Skyrocketing steel prices

2022-03-24 11:22:48 By : Ms. Grace Li

SKY-high steel prices are set to rise even further on the back of the war in Europe which is causing shortages and pushing up the price of fuel used in steel mills. Prices in Europe are also surging again as Brussels contemplate banning imports of steel from Russia as part of additional sanctions, threatening to further tighten markets.

Benchmark rates for hot-rolled coil in northern Europe jumped 10 per cent to €1,435 (US$1,583) a tonne on Friday, according to weekly data from Kallanish Commodities Ltd. Prices for rebar also rose to a fresh all-time high.

Ahead of talks about banning Russian steel, prices were already climbing higher, pushing Jamaica's largest steel supplier, Turkey-based Kaptan Metal, to signal further price increases are coming.

“We need to increase our prices due to shortage of raw materials and due to the high increase in the production costs. Because of the war, all your prices gone up. Because of the war, there is serious energy problem. So the cost of production, if I compare it last year, its gone up 20 per cent to 25 per cent, which is quite high,” Oytun Ozdogan, CEO of Kaptan Metal, told the Jamaica Observer in an exclusive interview. Kaptan Metal is based in Istanbul, Turkey.

“With new bookings [steel prices in the Caribbean] will be going up by US$250 per tonne, which is roughy about 30 per cent,” he added.

When asked about the likely impact of any ban on Russian steel, Ozdogan noted that it “will increase the price more.” Uncertainty still looms over how much more steel prices will increase. However, Ozdogan is clear, “The war between Russia and Ukraine is becoming a serious problem especially on steel item prices and also the cost of production.”

The market was already dealing with the loss of Ukraine's exports, normally the fifth-biggest supplier to Europe. Sky-high energy costs have also disrupted operations at some mills on the continent, curbing supply.

“Turkey's production costs have spiralled since the war began,” added Deanall Barnes, an attorney-at-law and construction consultant in Jamaica. Barnes adding context pointed out that, “This is because the billets, iron ore and scrap metal used in the production of steel and steel-based products are mainly imported from Ukraine or Russia.”

Turkey is Jamaica's biggest supplier of steel in a market dominated by Kaptan Metal.

“We are covering 90 per cent of the Jamaican market especially for rebars. We are covering nearly 85 per cent to 90 per cent of Panama, Colombia, Dominican Republic, Puerto Rico and Costa Rican market,” Ozdogan added. “These are the biggest five markets for Kaptan in terms of exports,” he continued. Kaptan Metal has been supplying the region with steel for the past 14 years.

“Russia and Ukraine [are] among the main sources for steel items,” he continued in an interview with the Business Observer, citing that his company sources most of the metal from those two countries.

Turkey, in 2021, imported around 1.6 million tonnes of slab, of which 54 per cent of the total was bought from Russia. Another 32 per cent, about 520,000 tonnes, was supplied by the Ukraine. Steel slabs are hot-rolled from an ingot or strand cast. They are wide and rectangular in shape. They are used for the manufacture of all 'flat' steel products such as coils, sheets, strip, plates and other flat-rolled steel products. Turkey also imports around three million tonnes of billets and 54 per cent — 1.6 million tonnes — is sourced from Russia and 15 per cent, which is 450,000 tonnes, is sourced from Ukraine. As for hot-rolled coil (HRC), Turkey imports five million tonnes of the rolled steel of which 30 per cent or 1.9 million tonnes is sourced from Russia and 20 per cent, which is about 1.1 million tonnes, is bought from Ukraine.

“Just roughly, you can understand how important these two markets [are] for Turkey. And since the war started on February 24, the steel Turkey have gone up by about US$200 per metric tonnes. It was around US$750 free on board (FOB) and now the rebar prices in Turkey is around US$950 per tonne FOB, so there is nearly [a] 30 per cent [increase] on the steel price. And when you look at the wire rod prices in Turkey, it's around US$1050 per tonne FOB and HRC prices at around US$1,300 per tonne FOB,” Ozdogan said as he outlined how the prices of steel have been moving in recent weeks.

“There is a lot of shortage on these products globally, and in Turkey in Europe in USA, all the prices are shooting up. The other reason, apart from the steel products, there is a serious oil and gas problem, especially in Europe. In most of the countries like Italy, Germany, in other countries, the steel prices are around €1,100 to €1,200 per tonne which is quite high.” Turkey is also the top supplier of steel to the European Union, which takes 31 per cent of Turkish steel exports.

“It is very scary, the full effect hasn't been felt here as yet,” Chris Bicknell, CEO of Tank-Weld, told the Business Observer in reaction to the realities facing the construction sector, with steel prices rocketing in recent times. Tank-Weld is one of the island's biggest suppliers of steel and other construction material.

Bicknell said the full effect of the recent increases in the price of steel on the international market will be felt when importers have to replace steel that are here now.

“It has already being increasing locally. [In the last few months] one tonne of steel has moved from $125,000 to $150,000. That's up 20 per cent. We are hoping for a break if the war is to stop,” Bicknell continued.

Barnes added: “Nails, squares, flats, hollow sections, fabric mesh have all increased. In my discussions, a few major developers that took the decision to order several hundred tonnes of steel (rebars) months in advance of when needed, clearly trying to hedge and minimise risks.”

Steel, however, is not the only major construction material seeing higher prices. “Presently, there is a worldwide lumber shortage which is expected to last at least for a minimum of three-six months,” Barnes noted. “As a result of the sanctions against Russia, countries such as India and Pakistan, and other big consumers are scrambling for alternatives. Europe is hanging on to their lumber for domestic consumption. As such, it is anticipated that demand for the US southern Yellow Pine lumber will increase,” he added.

The US is the primary source of lumber to Jamaica. Consequently, prices will rise locally and there is also a possibility of lumber shortage in a few months.

“My advice to developers and homeowners is to secure lumber quantities in advance, lock in prices and quantities with their supply source whether through a hardware store or a major distributor,” said the construction consultant.

Lumber prices fell in the last two weeks in the US but are still significantly above pre-pandemic levels. It is believed this reduction will be short-lived and as such prices are expected to increase in the near future.

Bicknell added: “Lumber prices spiked last year, going from $300 a thousand board foot to $1,500 and it is still up there. It hasn't come down to pre-pandemic levels as yet and that is not war related. It's just a basket of challenges that was first brought about by the pandemic and then exaccerbated by the war.”

Bicknell is, however, optimistic that the higher prices for materials used in the construction sector will not impact that sectors overall growth.

“Construction has had two very strong years and this year it doesn't look like it is going to ease up. I don't know what these high prices are going to do to it. But the projects on the table and those being spoken about, I would say this year is going to be a very strong year.”

The latest data show construction expanded 4.4 per cent in the third quarter of last year.

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