Steel industry needs to learn from aluminium and copper

Steel industry needs to learn from aluminium and copper. Drop in iron ore prices may be good news for steel producers but there is a larger issue that the industry needs to address. Steel is the only major metal industry that has its prices of basic raw material de-linked from the metal price. The annual negotiations between a few become the industry bench mark for iron ore, even though the resulting steel prices vary during the year, dictated by changing economic conditions, supply demand and competition. This creates un necessary risk. Aluminium and copper industries mitigated this risk by linking the alumina and copper concentrates prices to universally accepted LME prices of aluminium and copper respectively. This eanbles both the suppliers and producers to hedge the price risks. Universal price mechanism for steel is still in its infancy. Like the aluminium producers in the 80s, steel producers are opposed to it. But the lessons are clear. Analysis. While the integrated steel companies are less affected by changes in iron ore prices, the independant iron ore mines as well as steel producers are at the mercy of a few wh set the bench mark prices. In the recent past one or the other has been "un happy" with the prices. A true bench mark price has to be universal, transparent and dynamic. The present iron ore bench mark price is far from it. For instance, even if the iron ore prices are halved, who is to say that the steel produced from iron ore will be competitive with steel produced from scrap- especially if the supply of scrap increases and its price drops as a result of economic stimulus for more scrapped cars and bridges! Iron ore prices linked to steel prices is the way forward. Steel must learn lessons from aluminium and copper.