Could steel shortages be around the corner?

The incoming Chairman of UK Steel warned this week that there was a risk of steel shortages developing if the market did not adjust to the surge in Chinese demand for steel.

The incoming Chairman of UK Steel (the steel industry’s trade body) warned this week that there was a risk of steel shortages developing if the market did not adjust to the surge in Chinese demand for steel.

Steve Rutherford, Managing Director of Bridon, used his inaugural newsletter to members to highlight a report by UK Steel that examines the impact of Chinese industrial growth on the price and availability of steelmaking raw materials globally.

The report identifies world-wide rises in recent months in the prices of steel scrap by 40%, of iron ore by 20%, of dry bulk shipping rates by 75%, and of nickel by over 100%. In the UK, gas and electricity prices have surged since the summer. Coke is already in short supply in some markets.

‘Such rapid and substantial increases across the whole range of inputs are unprecedented in my experience,’ said Rutherford.

A UK Steel survey shows that this is already resulting in price increases by steel producers to downstream processors, many of which are also UK Steel members, of between 5% and 15% since December, as companies seek to recover the escalation in their raw material costs.

‘While there is no shortage of steelmaking, rolling and drawing capacity, particularly in Europe, the extreme tightness in raw material supplies is beginning to threaten steel shortages.’ Some EU steel companies have already announced production cutbacks.

Rutherford therefore warned that: ‘Unless higher steel prices are accepted along the entire length of the steel supply chain, there is a real risk of supply shortages developing. Steelmakers and further processors alike cannot absorb any further squeeze in margins. If we cannot pass on our cost increases across our whole product range then, as some Continental producers are already doing, we may be forced to concentrate output on higher margin products only.’

He concluded by stressing: ‘Higher steel prices will not damage UK manufacturing competitiveness, because this is a world-wide phenomenon, but supply shortages will.’