Global Steel Update: Steel and wire prices are set to rise

Steel and wire prices are set to rise - but what is driving the increase?

In recent months steel commodity pricing, like other consumer products and manufacturing inputs, has been on a steady rise without showing signs of slowing down.

These increases are expected to be heavily felt by wholesalers and manufacturers from March, with impacts flowing through to end users in the months following.

Let’s dig a little deeper into what is causing these increases.

Firstly, it is important to understand the key cost inputs that go into manufacturing, the supply chain of steel wire, and external market forces that influence world pricing. Ultimately supply vs demand is the main driver - when demand exceeds supply, we see prices rise. Dominant increases in the steel making world are iron ore and scrap metal prices, shipping and freight costs, and labour – all key cost inputs.

SO WHERE IS THE DEMAND COMING FROM?

China, the world’s largest steel producer and consumer has continued infrastructure development largely unaffected in a post Covid environment. Their government policy encouraging the upgrade of housing and infrastructure has generated high demand on steel. This demand has led to a surge in raw material needs, moving China ahead of the rest of the world market combined, in consumption of raw iron ore and scrap metals.

This demand is increasing pressure on normally consistent global supply chains. The increase in freight demand combined with the Covid-19 related limited availability and positioning of shipping equipment has dramatically increased freight pricing. Whilst impacts are global, the Shanghai Containerized Freight Index (SCFI) demonstrates the increase into Australasia with shipping container prices raising over three times the cost – a 177% increase on year prior.

International indices show iron ore and scrap metal have seen a surge in the world market. Iron Ore, the key ingredient in wire manufacturing, has risen 40% in December alone.

IMPORT COSTS

New Zealand is not immune from these global trends. When prices go up it costs importers more, allowing domestic suppliers to increase pricing. Whilst this can be driven by domestic costs also increasing, New Zealand ultimately follows these global trends. It is important to note here that while China has the largest impact on a Global scale, it is the impacts felt in Australia that influence the local market as well. NZ’s only wire mill is Australian owned, and our imports of wire are largely dominated by Australian supply.

Importers from other countries are also getting hit by import duties which are applied to wire. Just recently Malaysian supply has been reviewed with duties being imposed. There is also an active investigation into wire supply from Indonesia and China, with the preliminary findings indicating further duties are likely to be imposed on China as well.

SUMMARY

In summary, global demand is exceeding supply, steel prices are going up, New Zealand is not immune, and our supply chain is being impacted by increasing costs. Unfortunately, these factors all point in one direction – unavoidable price increases. The question no one can really answer is what does the future look like? Crystal ball gazing is the best bet, and with such volatility not seen in the market since 2008, it is really anyone’s guess.

ADVICE

Advice to FCNZ members would be to ensure you secure any steel fencing now for committed contracts which include the steel supply component, and not to commit to any steel prices beyond one month of quoting the job.

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