Steel price development 2010 and outlook for Q3

Since the beginning of the year the price of steel has been going up rapidly and forecasts indicate that this trend will continue during the coming months until, at least, the end of the third quarter of the year.

In April the price per ton in Germany for hot rolled coil was 600 € up from 440 € in January, an increase of 36% according to MEPS, a renowned steel consultancy basing their reports on actual transaction prices. The forecast from MEPS shows that this is expected to increase even further.

Present European steel demand does not explain the increase in the price of steel price experienced during the past months. A more likely explanation could come from the change in the price fixing system of iron ore – a basic ingredient of steel.

Annual ore price contracts between iron ore producers and consumers that had been the base for price negotiations for the past 40 years have been substituted by quarterly contracts. The effect has been a significant increase in the price of iron ore in the short term.

According to an article in FT.com (Financial Times) of March 30^th (“Steel prices set to soar after iron ore deal”) an increase of more than 80% of the iron ore will lead to increases of one third in the prices of steel as steel makers will pass on the increase to consumers.

This appreciation was also confirmed by Lakshmi Mittal, chairman and main owner of Mittal, the world’s biggest steelmaker on April 29, during the presentation of the company first quarter results. Referring to the steel price increases, Mr. Mittal said: “I don’t expect customers to be very happy, but there is not much we can do about it”.

In summary, Eldon is confronted with significantly higher steel prices than expected for 2010 with an outlook for even further increases.

It is our duty to explain these important developments to our customers. We will keep you informed.