Steel firms nervous as Corus considers pricing fluctuation

Steel contractors do not want to revert to tender price fluctuation clauses to combat rising steel prices, but Corus feels they could be necessary.
"The construction industry has got used to fixed-price contracts, but because of the volatility of input costs a new formula is needed to deal with the issue," said Corus' media relations manager Mike Hitchcock.
"After all, the construction industry has experience of escalation formulae to deal with serious inflation in the past."
A spokesman for the steel industry told CJ: "The steel industry's preferred option is to get better predictions on price increases from steel makers. Talks are being held with Corus to see if we can find a way to receive better pricing information. We do not want to revert to revising quotes after a job has started."
Hitchcock told CJ: "We have sought to announce price increases and surcharges at the earliest opportunity, but the fast-moving nature of the situation means some businesses within Corus may need to inform customers of changes more frequently than quarterly."
Corus announced an increase in price of between 5% and 8% across the board from 1 January, and a further increase of around 10% is scheduled for 1 April, which will take most steel products up to £30/t.
"The price of iron ore has gone up this year by around 18%; spot freight rates are three times what they were a year ago. This means the cost to Corus of importing iron ore, coal and coke has increased significantly. This is mainly due to increased growth in the Chinese steel industry and increased demand for coal," said Hitchcock.
"Chinese demand is causing price increases in scrap markets. Gas and electricity markets have also seen price increases due to some logistics bottlenecks and increases in delivered steam coal prices," said Hitchcock.
"It can be seen that recent steep rises in input costs are not just unprecedented," he added. "They are affecting steel producers worldwide. In the past, Corus has sought to absorb higher input costs, but the swift and unprecedented nature of raw material and other price rises mean that the steel industry must look to pass these increases on."
The steel industry is concerned that price increases are going to lead to a loss of market share to concrete.
Hitchcock responded: "Despite this situation, we are confident that steel remains competitive relative to concrete."