Predicting the price of steel

A worker at a steel factory in the Ukrainian industrial city of Mariupol which has played a part in the Eastern European construction boom.

The geographical location of Turkey defines it as the key supplier to the Middle East. The Suez Canal trade route has taken a buffering with fears of piracy off the coat of Somalia affecting commodity prices, although Nato pledged earlier this year to increase its efforts to fight the plague, with six warships due to arrive in the at-risk area in the coming months, according to reports.

Seasonally, trade routes from key suppliers such as Turkey are less affected, with climactic conditions notably more settled in the Mediterranean and Middle East regions than in Northern and Eastern Europe.

As Hassan explains, the open market of the UAE complements a trustworthy and relatively short freight time.
“Because it’s a 100% open market you can fix any shortage within the freight period between Turkey and the UAE, which is about three weeks,” he says. “If you place an order today, in just two and a half to three weeks, you will have your steel.”

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It goes without saying that freight is itself affected by energy costs. If oil is trading at $140 a barrel, it’s going to cost substantially more to send a ship from the Eastern Mediterranean to the Gulf. Therefore, to make any prediction at the future cost of freight, it is necessary to first look at energy.

Energy
The effect of the price of oil on steel prices is dramatic. It is the single most important driver. When oil peaked at a blistering high of $147 a barrel last July, steel was trading at a sweat-inducing high of its own, peaking at $1550 per tonne of rebar in the Middle East market. And as the oil price began its sudden nose-dive the following month, steel took to its own slippery slope, falling 73% in just four months.

So as the cost of a barrel of crude can spike and plummet with a single oil “event,” such as a rise in political tensions between the West and Opec, so the price of steel can be equally exposed to the vagaries of global geopolitics due to the conspicuous link between the two.

Big picture
All of this leaves the industry at the mercy of a highly unpredictable market. The price of steel can be indirectly influenced by a number of events; an Iranian missile test; a harsh winter in the Carpathian Mountains; a peak in pirate activity off the coast of Somalia; the passing of a bill through the US senate; or the tearing down of a dormant factory in Azerbaijan.

However, an attempt can be made to view the big picture. According to author Paul Roberts in his book The End of Oil,
“Research showed that after each of the six major oil price spikes since the Second World War, global economic activity
began to fall within six months.”

We witnessed the biggest oil price spike in history a little over six months ago, and sure enough, the global economy now finds itself deep in recession. This has been mirrored by a drop in demand for steel. This situation will likely remain for some time until the effects of the global stimulus packages begin to ripple through, and demand shows signs of recovery.

The experts are predicting that 2010 is likely to remain flat, with a recovery in steel prices from 2011, which spells good news for contractors operating on a tight budget.
 

Suppliers, on the other hand, will be hoping for a swifter recovery. Something which could be triggered anytime, any place, anywhere.