New problem for the steel industry: the coke oligopoly
Battered with high iron ore prices, the non-very consolidated steel industry now faces an even bigger problem: a major rise in the price of the coke, the specialized coal that they use in the steelmaking process. And while iron price have risen by 65% since last year, coke prices are running around 400% higher, according to a Wall Street Journal article ("Higher Coke Prices Loom In New Hit to Steelmakers", 3/8/08).
Just as with iron ore, early negotiations for coke are setting the price, in this case with South Korea's Pasco, the world's #4 steelmaker. And the prospects are alarming, as the article points out:
Posco officials weren't available for comment on reports that it had agreed to pay about $300 a metric ton for coking coal compared with the current contract price of about $100 a metric ton.
And the winners: the same set of mining giants that keep profiting from expanded world demand: namely, BHP Billiton, Rio Tinto and Xstrata. The first two of these companies are already rolling in cash thanks to higher iron ore prices, while Xstrata has big positions in other metals. In fact, all three companies have been the targeta of even bigger mining merger moves in the past few months.
Aside from demand, the prices are higher because of flooding in Australian coal regions. But above all, the big mining companies are profiting from an ever growing demand and a static supply of raw materials.
The consequence will trickle down the production chain, to construction, automobile and heavy equipment manufacturing, appliances, and the many other uses that have steel components. The big mining companies have now more economic power than many countries.
