By Al Edwards, Business Co-ordinatorLOCAL steel prices continue to skyrocket as China's huge demand goes on unabated and world supplies become more scarce. Not a day goes by without an announced price increase or surcharge. This has had an undoubted affect on local prices, particularly bearing in mind the fact that Jamaica has to import most of its steel.
There is no foreseeable end to the present scenario and the situation appears sustainable for the following reasons:
The world supply and demand balance for steel is in the best shape it has been for at least 25 years.
China's demand continues to be strong and is pressuring that newly balanced global supply and demand.
The U.S. dollar has given U.S. mills significant pricing power against imports, which are necessary to fill the 20 per cent gap in the U.S. market that the U.S. mills cannot serve.
China's high demand for material has caused a shortage of ships in the world, causing international freight rates to increase 150 to 200 per cent.
U.S. demand has just begun to improve after three years of decline, and the rest of the world, except China, is also just beginning to see improved steel demand or a bottoming out in weakness.
Inflation rates globally remain low, which should forestall any tightening actions by central bankers who may be concerned about overheating.
Only last month, the managing director of Tank-Weld Metals, Bruce Bicknell, speaking with the Financial Gleaner said: "I have been in this business for 15 years and I have not seen anything like it. As the largest seller of steel in Jamaica, we have no choice but to pass on the additional cost to our customers. Eighteen months ago we were paying $20,000 a tonne, now the price is above $30,000 and climbing."
Fast forward a month later and this is what Mr. Bicknell had to say.
"We are now wholesaling at $40,000/tonne, and if this trend continues, it may soon reach $50,000/tonne. A shipment costing us US$5 million a year ago is now costing over US$10 million for the same volume.
"The fact is, we are in uncharted territory when it comes to availability and pricing and we are very concerned about the adverse consequences on our construction industry."
BUILDING RELATIONSHIPS WITH MILLS
As of yesterday, Tank-Weld has put up it prices to $44,000 a tonne, which is close to its replacement cost for its April/May shipment. Mr. Bicknell recently returned from Brazil, where he does business with a mill that operates there. He said that the mill said that it could deliver steel to Jamaica at US$620 per tonne. With steel becoming a precious metal mills have become booked for at least a year in advance of orders.
"You have to build relationships with mills, particularly with them now looking to China. If this Brazilian order did not come through there would have been a shortage of steel in Jamaica within two months. What is apparent is that these price increases are beyond our control."
Another factor that has contributed to the chain of events is the weakening of the U.S. dollar in relation to the euro. At it stands, Tank-Weld's line of credit and export insurance is now over extended, which means it now has to pay more up front, thereby putting pressure on its financial resources.
Five years ago, the Asian market was depressed with mills shutting down but China has taken the world by surprise and it now has a huge appetite for commodities. The shortage of raw materials and vessels means that this high price trend will continue for some time yet.
A number of infrastructure projects, more particularly the port expansion in Gordon Key, Highway 2000 and the Spanish hotel chain expansion will require substantial quantities of steel, which companies will be looking to source locally. The increasing cost of steel also means that small contractors will have to adjust their pricing accordingly.
Bicknell: I have been in this business for 15 years and I have not seen anything like it. As the largest seller of steel in Jamaica, we have no choice but to pass on the additional cost to our customers. Eighteen months ago we were paying $20,000 a tonne, now the price is above $30,000 and climbing.
