Sunday, February 20, 2011

Brazil; Cost of raw materials will be the main factor of external pressure on the prices of steel.

Despite the context of increasing supply in 2011, the increase in prices of major raw materials for steel shall generate pressure on the prices of steel products.
The average prices of iron ore in spot market should be up 7% compared to 2010, given the context of continued global supply relatively tight. The prices of inputs are very close to the peak observed in the pre-crisis period, after the sharp rise of 58% observed between December 2010 ($ 176 / t) and the same month in 2009 (U.S. $ 111.5 / t).
While the new large projects in the sector do not come into operation, maintenance of the restricted availability scenario should keep the pressure on prices, with impacts on the costs of producing steel. Our expectation is that with the gradual entry of new capacity, the price of ore present most significant falls only around 2013 and 2014, which should also have an effect on steel prices.
Coal, another major cost of production of steel, should also exert additional pressure on steel prices. Supply constraints, primarily related to issues of infrastructure and transportation, were already keeping the prices of inputs at historically high levels. They added to the recent floods occurred in Australia, world's leading exporter, which is already resulting in significant about the high price of raw materials in short-term framework that should continue until the supply restored.

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