Over the past decade, steel has developed
into a truly global industry. The increase in supply from Asian countries has
transformed the dynamics of the market. Steel buyers around the world are
becoming more adept at purchasing material in international markets. To
illustrate this fact, global annual foreign trade in steel has increased by 70
million tonnes over the last five years – with a sales value of US$45 billion,
at today’s prices.
The development of internet communication has made it easier to source new
suppliers and search out more competitively priced material, for the wide range
of steel products produced and sold around the world. Face-to-face discussions
between buyer and seller have given way to dialogue via electronic methods.
This form of remote purchasing, together with the recent volatility of steel
prices, has resulted in an increase in the need for and use of independently
researched data to assess changes in steel selling prices, over the period of
contracts. Agreements are often made, between buyer and seller, in which
researched index values, obtained from recognised data providers, are used to
represent price changes, for a range of popular products, in selected
countries.
Independent research organisations, with no connection to buyers or sellers of
steel, provide the market information. Price discovery is obtained by the steel
market analysts, through discussions with senior personnel in both steel procurement
and supply, to obtain an objective view of changing market selling values.
Prices and indexes are prepared from the results of the investigations into
average monthly selling figures. The results are available from the research
company, often online, for use by subscribers to the service.
Using the reported online index figures, both buyers and sellers are able to
evaluate the monthly percentage change in the average price of defined steel
products, over a selected time span. The results act as reference for the
escalation or reduction in the previously agreed price for a specified steel
product, over set periods in the supply contract. This is not a new concept but
it is becoming increasingly popular because it offers a degree of confidence to
both parties that price changes are referenced from an independent source.
Advantages to steel buyers include the ability to agree, with remote suppliers,
the percentage change in the cost of steel in a specified region using figures
defined by an independent source. It minimises the need for expensive travel to
discuss price changes. Steel buyers are also able to incorporate the changing
costs of steel into the selling price of their company’s manufactured goods.
Benefits to steel producers derive from their ability to reflect changing costs
of raw materials and market conditions into their selling prices over the
contract period.
Independently researched average steel prices and indexes, when incorporated in
supply contracts, enable both parties to react to actual market conditions over
the life of an agreement. This is beneficial to buyers of both imported and
locally sourced material. It can prove to be particularly important in volatile
market conditions or when steel is purchased from foreign suppliers.
Trading in international steel markets is expected to continue at the current
level well into the future.
Source: MEPS