6.4.2004
Is the steel-making industry in crisis? Because today in the Czech Republic for example there is a lack of crap? Because it is exported and its domestic price is growing? It is not a crisis. It is a consequence of worldwide globalization of industry and economy or better to say side effect of big changes in this industry.
Steel is a perspective material even for the future. The current trend is to make higher quality steel that may be refined. Steel can be completely recycled. The modern steelworks, called mini-mills with scrap input charge, are built based on this phenomenon. In VÍTKOVICE STEEL, a.s., scrap makes approximately 30% of technological inputs (it is the second most important raw material – after hot metal).
The current problems only confirm the change in the global relations in economy and in consolidation of global markets. The steel-making industry is in a specific position. It is an industrial branch which is vitally depending on supplies of raw materials, either iron ore or secondary raw material – steel scrap. Their availability and price affect the economy of the entire industry. The sensitive steel market world responded fiercely to the interim period characterized by a lack of resources. Because raw materials need to be transported to the processing site, ensuring the needs of the present steel-making industry leads to certain disproportions from the economy point of view.
On the other hand, the lack of steel scrap shipping capacities multiplies the demand for big transport ships. The boom in the marine sector and higher demand for plates is favorable for companies like VÍTKOVICE STEEL, a.s.
However; for producers of hot metal this shock in demand represents complications. On one hand it is an opportunity to get better price and to maximally utilize their capacity, but on the other hand the coal mining companies can hardly meet the demands. It is a legitimate and recurring phenomena. Until the situation calms down, the prices of the basic raw materials are attacking the long-term maximum levels.
We are witnessing another development step. In the same way as the small steelworks located near the resources were vanishing at the end of the turn of the 19th and 20th century and big, integrated steelworks enterprises were established, in the next decade the steel-making companies will replace their raw material suppliers or they will conclude long-term contracts on cooperation with them or possibly establish joint ventures with coal mining companies.
Terms and conditions of contracts are changing. One of the solutions of the current turmoil in the demand for input raw materials can be price escalation clauses in contracts pending, then conclusion of contracts with a “price safeguard” or re-negotiations of the existing job orders. The final price of some products consists of the effective delivery price and then it includes a scrap mark-up.
The price shock has forced the producers to use time-limited validity of prices, which is an action that has not been used very often so far. The close of the contract is postponed to the latest possible instance, so that the producer is not unnecessarily exposed to a risk of losses caused by an unexpected price increase. Negotiation of the final form of the contract is much more complicated and it requires huge know-how, experience, and also some portion of cryptaesthesia, what changes are waiting for the industry. Everything oscillates around efficiency, (cost) mark-ups, monthly guaranty of prices and ongoing negotiations with the clients.
We are witnessing pressure from the regions with highly developed technological equipment and cheap work force. And here we need to be looking for the cause of the current situation. China has proved once again that it is a player of the worldwide format and that even a minor underestimation can have severe economic consequences.
