THE CHANGING FACE OF
Over the past decade, steel has developed into a truly global
industry. The increase in supply from Asian countries has
transformed the dynamics of the market. Steel buyers around the
world are becoming more adept at purchasing material in
international markets. To illustrate this fact, global annual
foreign trade in steel has increased by 70 million tonnes over the
last five years – with a sales value of US$45 billion, at today’s
The development of internet communication has made it easier to
source new suppliers and search out more competitively priced
material, for the wide range of steel products produced and sold
around the world. Face-to-face discussions between buyer and seller
have given way to dialogue via electronic methods.
This form of remote purchasing, together with the recent volatility
of steel prices, has resulted in an increase in the need for and use
of independently researched data to assess changes in steel selling
prices, over the period of contracts. Agreements are often made,
between buyer and seller, in which researched index values, obtained
from recognised data providers, are used to represent price changes,
for a range of popular products, in selected countries.
Independent research organisations, with no connection to buyers or
sellers of steel, provide the market information. Price discovery is
obtained by the steel market analysts, through discussions with
senior personnel in both steel procurement and supply, to obtain an
objective view of changing market selling values. Prices and indexes
are prepared from the results of the investigations into average
monthly selling figures. The results are available from the research
company, often online, for use by subscribers to the service.
Using the reported online index figures, both buyers and sellers are
able to evaluate the monthly percentage change in the average price
of defined steel products, over a selected time span. The results
act as reference for the escalation or reduction in the previously
agreed price for a specified steel product, over set periods in the
supply contract. This is not a new concept but it is becoming
increasingly popular because it offers a degree of confidence to
both parties that price changes are referenced from an independent
Advantages to steel buyers include the ability to agree, with remote
suppliers, the percentage change in the cost of steel in a specified
region using figures defined by an independent source. It minimises
the need for expensive travel to discuss price changes. Steel buyers
are also able to incorporate the changing costs of steel into the
selling price of their company’s manufactured goods.
Benefits to steel producers derive from their ability to reflect
changing costs of raw materials and market conditions into their
selling prices over the contract period.
Independently researched average steel prices and indexes, when
incorporated in supply contracts, enable both parties to react to
actual market conditions over the life of an agreement. This is
beneficial to buyers of both imported and locally sourced material.
It can prove to be particularly important in volatile market
conditions or when steel is purchased from foreign suppliers.
Trading in international steel markets is expected to continue at
the current level well into the future.
Author: Peter Fish – Managing Director MEPS International
Ltd. May 2017
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