A brief history of Steel Pricing

12 May 2021, By SteelPrice.Today

Iron ore prices have surged to a record high in the past few years and many are wondering why this happens at this point in time. Let us read a short history of past century to understand the basis, to get a clue of where it is headed.

We all know that Iron ore is the main raw material to make steel. When the steel price go up, price of most everyday goods also goes up. For this reason, Iron ore bench mark prices were most important factor deciding the global economy. For decades until 2010, Benchmark price for Iron ore was set by a curtained talks between miners and steel makers. Once the prices are set, that level is followed by everyone else for the rest of the year.

Early Days 1945-2000

After World War 2, steel makers in Europe dominated the Benchmark Steel Price in Rotterdam (a port city in Netherlands). During this period(1945-1975), the demand for steel increased more than 6% year on year steadily, and obviousy considered a Golden age for steel business.

During the Mid-1970s The Japanese steel industry saw a rise and led to the shifting of price talks from Europe to Asia. Despite the shift in demography, the benchmark system was still followed. The demand for steel also slowed and saw a degrowth of 0.5% a year.

Untill 2010, the same process of fixing Benchmark price was followed primarily from Asia. Till then it was not the Supply-Demand the fixed the prices. Rather fixed by Minsers-Steel Makers.

During the 1980 and 2000, the price or Iron ore fluctuated around $10-$15 per tonne.

Recent Years

The age of China started in the late 1990s, which accelerated the global demand for steel.

With increase in Chinese steel demand, Baosteel (the top Chinese steel maker) took a lead on price talks replacing the Japanese steel makers. And then the iron ore prices started its rally.

By 2008, the iron ore prices surged to $60. Due to the surge in iron ore price, the benchmark pricing system struggled. Beijing took a lead role in price talks through the "China Iron and Steel Association(CISA)" that included former Chinese bureaucrats.

The benchmark price system is a long term supply contract and annual benchmark pricing system continued to rule the prices, Until the spot prices of Iron ore originating from India (Mostly) started fluctuating daily and started to remain higher than the Benchmark prices set for the year. Benchmark system sterted to cruble in 2009 and ultimately collapsed in 2010 and the Iron ore prices started to follow Supply-Demand forces.

Since 2010, the iron ore market has been a rollercoaster. With Iron ore pricing as a key commodity started following "Supply-Demand" driven pricing just like Crude oil and Coal, the Chinese demand that exceed the current supply conditions have made iron ore prices touch $200.