Steel Prices on the World Market Essay Example | Topics and Well Written Essays - 2500 words

Steel Prices on the World Market - Essay Example i) Number of Steel Plants (Over supply caused reduction in plants via bankruptcies, mergers and plant concentration) Increase of Supply can only be achieved by increasing production capacity via (i) more plants (slow process as lead time is many years due to cost, market entry barriers via government regulations, environmental regulations, investment capital requirement to finance installations, complex mechanics), or (ii) increase of productivity within the plants (possible to a certain extent only until capacity is maxed out, The question of steel Prices has moved into the center of attention of the economic world since they started skyrocketing over the last 2 to 3 years. As steel is at the core of a large number of products, increases in the base product have a tremendous effect on the prices of subsequent product and thus on several price indices. In the extreme, certain business areas can be largely effected by shortages and price increases, strongly influencing their overall profitability and ultimately, in certain cases, threatening their survival. In the following I would like to investigate some of the causes, effects and remedies of this phenomenon and will attempt to make some predictions as to its future development. So while both primary and fu... As steel is at the core of a large number of products, increases in the base product have a tremendous effect on the prices of subsequent product and thus on several price indices. In the extreme, certain business areas can be largely effected by shortages and price increases, strongly influencing their overall profitability and ultimately, in certain cases, threatening their survival. In the following I would like to investigate some of the causes, effects and remedies of this phenomenon and will attempt to make some predictions as to its future development. It is being reported that steel price is one of the major contributors to the overall increase in wholesale price index. A little analysis would put the thing in right perspective. Item Weight Index on 24.7.04 (Base:1993-94=100) % Growth over last year % Contribution to price rise All Commodities 100 186.2 7.5 Primary Articles 22.02 191.0 6.3 1.4 Fuel, Power, Lubricants etc 14.23 274.4 10.0 1.4 Manufactured Products 63.75 164.9 7.1 4.53 Iron & Steel 3.64 240.9 45.0 1.6 So while both primary and fuel have contributed 1.4 percent each to 7.5 percent increase in WPI indices during the last one year, the prices of manufactured products has led to a 4.53 percent growth in prices. And out of the manufactured product prices, the prices of iron and steel items have contributed 1.6 percent to the overall price rise. This implies that around 21 percent of the general price rise in the last one year has been accounted for by prices of iron and steel. Under any counts this is substantial and unprecedented. The direct linkage of domestic steel prices with international prices is frequently being cited as the