Global iron ore trends spark concern
By Scott Robertson
Published: May 10, 2010
PITTSBURGH -- The World Steel Association is greatly concerned with the global iron ore situation, director-general Ian Christmas said during meetings of the OECD Steel Committee in Paris.
Christmas reiterated WorldSteel's alarm at the potential negative impact on steel and its customers from recent developments in the iron ore and metallurgical coal markets. He said the Brussels-based organization is concerned not only with the rapid price runup but also the potential of additional consolidation, which would further concentrate pricing power in the iron ore market.
"Steel is a capital-intensive and globally critical industry which has a big impact on the economy," Christmas told the OECD. "It requires long-term relationships between mining companies, steel companies and the users of steel, and recognition of their mutual dependence. The current developments in the raw materials market constitute a breakdown in this relationship and it is in the long-term interests of the complete steel supply chain that this is rebuilt.
"Our industry has three major concerns. First, the recent unprecedented rises in the price of iron ore and metallurgical coal pose serious problems for the margins of steel companies and their customers and risks accelerating inflationary pressures in the economies of many countries since steel is used in virtually every aspect of modern life. It also has a serious knock-on effect on the market for ferrous scrap."
Second, the unilateral replacement of annual contracts with a three-month spot price for iron ore by the major mining companies will greatly increase the risk of price volatility in iron ore and scrap prices, which will have a negative impact on the entire steel supply chain, Christmas said.
And "in light of the already highly concentrated nature of the iron ore industry, where only three companies (Vale SA, Rio Tinto and BHP Billiton) control most of the supplies, there is a clear case for the competition authorities around the world to oppose any further consolidation of business interests between the top three mining companies," he said. "Competition authorities may also wish to consider whether the current market concentration is in the interest of the users of steel and society as a whole."
U.S. mills have begun implementing an iron ore surcharge in some contracts as a means of coping with rapidly rising prices.