ArcelorMittal Raises Prices

Steelmakers say raw material costs sky high.

ArcelorMittal, the world's biggest steelmaker, announced on Feb. 21 its second price rise in two weeks, saying raw material costs were now at precedented levels after a massive hike in iron ore charges. With iron ore set to rise 65% after an agreement on Feb. 18 between Brazil's giant miner Vale and its Asian customers, ArcelorMittal said it had no option but to increase its steel prices again to keep up.

"It is now important to secure sufficient supply and to overcome all logistic hurdles, to make sure our customers obtain the volumes they require," said Christophe Cornier, chief executive of ArcelorMittal Flat Carbon Europe.

On February 5, ArcelorMittal had said it would raise prices for flat carbon steel in Europe by 12%-15% from April 1 because of higher raw material and energy costs. It added at the time that further increases might be needed depending on the outcome of talks between the mining companies and steelmakers on the price of iron ore, their basic raw material.

Nippon Steel and JFE Holdings of Japan and POSCO of South Korea accepted a 65% increase in iron ore prices for the year beginning April 1 by Vale, with the accord setting the benchmark for the industry. For the current year to April 1, 2008, ore prices rose 9.5% after 19% and a massive 71.5% in the two previous periods, which prompted a furious response from China, one of largest producers and consumers of steel as its economy booms.

ArcelorMittal was not alone in voicing concerns over the increase in iron ore input costs on Feb. 21, with European steelmakers warning that the power of just a handful of mining giants was driving prices higher. "Over-concentration in the supply chain of steelmakers has resulted in an explosion of prices," said Gordon Moffat, director general of the Eurofer trade association representing European iron and steelmakers. "Ultimately, these extra costs will have to be passed on to the consumer ... This will inevitably result in higher prices for steel in Europe and worldwide."

The global supply of iron ore is currently dominated by just three companies -- Anglo-Australian giants BHP Billiton and Rio Tinto, the world's second and third-largest iron ore producers. BHP Billiton is currently in the midst of a hostile takeover bid for Rio Tinto, which Eurofer firmly opposes because it fears the merged company would control 75% of the iron ore market.

"The price rise of 65% which has just been announced comes before the proposed merger," Moffat said. "Imagine the pricing power which these suppliers will have when trade is dominated by just two companies." Eurofer warned that it not only faced pressure on iron ore but also coking coal, with half of that market controlled by Rio Tinto and BMA, a joint venture between BHP Billiton and Mitsubishi.

Copyright Agence France-Presse, 2008

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