Iron ore price hikes hit Gulf steel makers

11 April 2008
Steel producers are facing cuts to their profit margins, with customers unwilling to accept the full cost of rising raw materials prices, according to industry executives.

Iron ore costs have increased faster than expected this year. In early April, Brazilian iron ore producer Vale announced that the price of iron ore pellets, widely used as feedstock for steel mills in the Middle East, had risen by 86.7 per cent.

It increased its prices after holding talks with four of the region’s largest steel makers, including Qatar Steel and Sabic.

“If steel makers do not raise prices, they will be in a losing position,” says Hussein Murrar, head of commercial relations at Qatar Steel.

“They have to try to recover their costs. But even if they increase their prices, their costs have gone up by more than 80 per cent. You have to ask how much that will eat into margins.”

Saudi Basic Industries Corporation (Sabic) has added SR825, about 27 per cent, to the cost of steel reinforced bars (rebar) produced by its steel-making arm, Saudi Iron & Steel (Hadeed). The retail price for one tonne of rebar is now about SR3,800.

“Other steel makers in the region will follow suit,” says a senior executive at Sabic. “But we all have to continue to make steel available to the construction industry at a relatively affordable price.”

In part, the ability to do so lies in securing access to sources of iron ore and both Sabic and Qatar Steel are looking to buy stakes in iron overseas ore mines.

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