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Commodities

Steelmakers' costs are on the rise

Steelmakers' raw material prices are on the rise, which could force furnace operators like Nippon Steel & Sumitomo Metal, which runs this plant in Kashima, Japan's Ibaraki Prefecture, to pass on their cost increases.

TOKYO -- Prices of the raw materials used to produce steel are climbing, increasing pressure on steelmakers to further raise their product prices.

Prices of iron ore, a principal material used in blast furnaces, have risen to a three-month high, while coking coal has topped the critical price level of $100 per ton. Iron scrap, used in electric furnaces, continues to show firm price trends.

Spot prices of iron ore rose above $60 per ton on Monday, up 25% from early June. Coking coal temporarily surged to around $103 for the first time in about 16 months.

Behind the uptrend is a steep increase in fixed-asset investment in China, the world's biggest producer of crude steel, during the first half of 2016. This was a result of the government accelerating investment in railroads and other infrastructure.

With steel product prices turning north, the production per day of crude steel in China set an all-time high in June.

China is increasingly importing more coking coal as the government curbs production of the black stuff. With working days at coal mines limited to no more than 276 a year, steelmakers in China "have no other choice but to rely on imported coal," said a representative of a major Japanese trading house.

Investors are tending toward nonferrous metals and steelmaking materials with room for further price rises while crude oil remains in a downtrend, said Naomi Suzuki, a senior analyst at Sumitomo Corp. Global Research.

In China, traders have reported building up their iron ore and coking coal inventories.

Goldman Sachs, the U.S.-based financial services company, pointed out that China's steel product exports are firmer than forecast and will push up demand for iron ore, raising its price projection of the material for the July-September period by nearly 20% from its earlier forecast to $53.

Prices of iron scrap used for steelmaking are currently close to 20,000 yen (nearly $200) per ton, up 10% from mid-July. While electric-furnace steelmakers are cutting back on production because of regular plant checkups, product prices are being shored up thanks to brisk exports.

Vietnam in July officially introduced temporary safeguard measures on steel billets, imposing a duty of more than 20% on the semifinished crude steel product. Iron mills in Vietnam thus have turned to importing iron scrap. This has led to Japan exporting more of the material to the Southeast Asian country.

Nippon Steel & Sumitomo Metal has been procuring more iron scrap during the current July-September period due to brisk steel product exports.

With expectations of price falls subsiding, electric-furnace steelmakers are starting to increase their inventories, according to industry representatives.

In the meantime, lopsided rises in the prices of steelmaking materials are considered unlikely due to the industry's sensitivity to demand trends in China.

In addition, scrap price hikes in Japan will be limited in light of the yen's appreciation, according to a representative of a steel trading house.

(Nikkei)

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