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The Pricing Syndrome Is Heading to the Rail Sector. How Will It Affect Iron and Steel Prices?

The Pricing Syndrome Is Heading to the Rail Sector. How Will It Affect Iron and Steel Prices?
photo: Archive/The Pricing Syndrome Is Heading to the Rail Sector. How Will It Affect Iron and Steel Prices?
10 / 05 / 2022

Both materials and commodities markets have been affected by the Covid-19 pandemic in recent years, and the baton has now been picked up by the war in Ukraine. The iron and steel trade has not been spared the adversity.

In summer 2021, the iron ore price reached a record USD 200 per tonne. After the autumn and winter slump, when a tonne of iron reached USD 100, the war in Ukraine has been affecting the price. Currently, one tonne of iron ore sells for USD 160, and the price of the final materials - iron and steel - is rising too, following the price of oil and energy crises, which transport and processing cannot do without.

Russia's invasion of Ukraine has triggered a price rise which, by the end of March, had resulted in an average month-on-month increase in the price of steel of more than 60%. The absence of supplies of steel and components and materials needed for production from the conflict countries led to the enormous increase. The average volume for Europe supplied from Russia and Ukraine is 20% of consumption. In addition, steelworks' production is constrained by rising energy costs. Last but not least, the panic in the European market, which dragged prices upwards until mid-March, can be seen as another parameter.

Supplies of some grades, such as stainless steel with the trade name corten used in construction and produced in Ukraine, have been completely blocked by the war. As a consequence of all the factors mentioned above, rising energy prices and wages, companies are running out of options and are left to pass on costs to customers or cut production.

In addition to the European market, the conflict in Ukraine is affecting other crucial steel-producing centers in the world, i.e., the USA and China. As the United States sources half of its pig iron from Russia and Ukraine, it faces similar price developments to those in Europe. Moreover, the situation in China is aggravated by lockdowns and the closure of 19 blast furnaces.

Unfortunately, it is impossible to predict the future development of prices, as it is dependent on a completely unpredictable war. Prices will stabilize, provided that there is no fundamental escalation of the conflict.

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