Get Ready For The Jump In Price Of Steel

steal

The question is why is the outlook for the global steel industry so bad when the price of a tonne of the metal is rising?

Investors have seen steel become one of the best-performing commodities of the year, with prices up around £35 a tonne to £285.

But it’s hard to talk about the future of steel without that dreaded investment euphemism ‘buffalo jump’.

The term derives from the North American Indian practice of herding buffalo and then driving them to their doom off a cliff top.

For investors, the jump is a sudden increase in the price of a share or commodity before the value starts to drop.

Massive oversupply

The problem for steel companies is a huge global oversupply that means for every three tonnes manufactured, only two are sold.

Steel makers are stockpiling and the market is reaching saturation point.

Making steel costs more than companies can sell the metal for and that’s the point of no return for many.

Steel has nowhere to go. No one wants to buy it and the market is dominated by China. Last year, the Chinese exported 107 million tonnes of steel and is trying to offload more overseas.

The Chinese government subsidises steel makers which companies in the US, UK and India bemoan as unfair. The losses to the top 100 Chinese steel maker funded mainly by the government until October 2015 were put at more than £7.6 billion.

Chinese subsidising loss makers

Basically, the Chinese are selling at below cost to push their rivals out of the market and no one can do anything about it.

Steel has always had a soft spot in the British economic psyche.

As the first industrial country, Britain was the first nation to manufacture steel on a commercial scale in the 1850s. Today, Britain accounts for about 1% of the international market and losing the remaining production plants would mean some job losses but would not be a major economic disaster.

Tata Steel, the large Indian conglomerate, is looking for buyers for plants in the UK, with a workforce of around 15,000 and an estimate 35,000 other jobs relying on the industry.

Prime Minister David Cameron says he is working to save as many jobs as he can but offers no guarantee of success.

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