“Mighty on the Lehigh” by Alan Strakey via Flickr
Just like any other commodity, steel is subject to a number of events that can influence its price. Everything from the cost of the raw materials to fuel prices has a direct impact on the price of steel on a daily basis. Here’s a look at some of the factors that play a part in determining the price of steel.
Oil plays the strongest role in the price of steel. When oil is cheap, shipping raw and finished materials costs less. When oil prices rise, steel prices rise.
Cost of Raw Materials and Supply & Demand
Steel is made up of iron and other metal and non-metal components that are considered commodities. Supply and demand have a big impact on commodity prices- the higher the demand and the lower the supply, the higher the price. And the reverse is true as well.
The price of steel’s components depends not only on the price buyers are paying today but also the price they are predicted to pay in the future. Because the prices are based partly on prediction (educated guesswork), prices are not stable and shift often.
Price determination mechanisms involve two major metal markets, the London Metal Exchange (LME) and New York Mercantile Commodity Exchange (COMEX). Other mechanisms are online trading exchanges, advanced and spot contracts, and basic cash exchanges between buyers and sellers.
The market for steel, though well established, is not as mature as the market for base metals. This is primarily because steel is a less tradable commodity due to differing user requirements. Market price standardization is difficult because steel is created in a variety of grades and forms.
Availability of Recycled Steel
Steel prices also depend on the availability of recycled steel. Steel is one of the most recycled materials on the planet, reaching recycling rates as high as 60%. The amount of available recycled steel available depends on the steel already present in a country. Some countries have a large infrastructure already created with steel, and when it ‘s replaced (it ‘s North America ‘s number one recycled material, with more than 63 million tons recycled since January 1, 2016. ), the old steel becomes available for recycle. In other countries with less modern infrastructure (like China), there is very little, if any, steel in the existing structures, so the price of steel is more dependent on newly forged steel.
A steel surcharge is a charge levied in addition to the established contract price to account for fluctuations in the cost of a metal alloy or raw metal. Surcharges are commonly used in volatile markets to pass on price increases to the customers.
(Click here for a look at the global state of steel in 2016.)
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