The steel market is a complicated beast, and just when you think you have the hang of it all, someone in rural China throws a curve-ball and suddenly the world falls out of your budget.
While this is by no means an exhaustive financial document, it may go some way to explaining the fluctuations in the price of steel, and why you need to budget carefully and keep your finger on the pulse.
Factors That Affect The Price Of Steel
Supply and Demand
As with any commodity the less there is, the more it costs. This is especially true in the steel market as the demand has been growing steadily for years as new applications are found for this miracle metal. Not only do we need to consider current supply and demand, but the financial fundis also look at forecasts and trends to decide what a pound of steel should cost.
Steel is made up of varying components, mainly scrap (recycled) metal and iron ore. When these are in short supply the cost of the finished product will naturally increase, but when these raw materials spike, the knock-on effect is directly felt on the cost of steel.
Shipping and Labour Costs
While locally produced products usually cost less, this isn’t always the case. Transport and shipping costs into and out of South Africa vary greatly depending on the time of year, the strength of the Rand, and any number of political situations. However, when importing the raw materials used for steel, or steel itself, may sometimes be cheaper than producing it in-house, so to speak, there has been pressure on the manufacturing industry to use local materials. Encouraging manufacturers to ‘shop locally’ increases jobs, but may result in higher labour costs.
While the strength of the US Dollar is a major factor in the price of steel, the strength of our own Rand also plays a big role. A weaker currency will impact even the most robust industry.
Other factors such as market maturity, production costs and global political and economic factors all play their part in the dance to determine the price of steel.
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