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What is driving fastener prices?
A special report from Phil Matten
A complex combination of factors is driving up global fastener prices at an extraordinary rate, likely to prove more violent in its effect
than the events of 2003-4. Fastener distributors and importers are already incurring substantial cost increases, with prices from
manufacturers across the world hardening dramatically in recent weeks. The prevalent question is, ‘What is causing it this time?” closely
followed by “how will I get my customer to understand?’ Here Phil Matten draws on extensive research to try to provide some coherent,
if uncomfortable, answers.
In recent weeks fastener companies have been to which is added molten iron from a blast sea freight of raw materials from mines to
deluged with notifications of price increases, in furnace. The process consumes massive steel makers, as well as freight of finished
many cases applied immediately to existing, volumes of hydrocarbons – normally natural products.
outstanding orders. Fastener wholesalers are gas or fuel oil.
forecasting that prices across the range of The other method uses an Electric Arc Iron ore
standard steel fasteners could easily be 30 to Furnace and is popular in the US, where it Three companies control more than 70% of the
50% higher than 2007 prices within a matter accounts for around 40% of steel production, world supply of iron ore. Vale (previously
of months. as well as Italy and Turkey closer to home. In CVRD) supplies from Brazil. Rio Tinto and BHP
The main contributors to these increases this process the charge is almost entirely Billiton (BHPB) supply mainly from Australia.
are: ferrous scrap, with only small amounts of pig India is also a significant producer as is China,
• Steeply increasing steel prices as a result of or direct reduced iron. The EAF process uses although its resources are insufficient and of
shortages, dramatic increases in raw material between 350 to 700kWh of electricity to inadequate quality to meet its demand for high
costs, and persistent rises in other input costs. produce a tonne of steel. grade steel.
• Resultant steep cost increases and shortages Wire rod is produced by driving heated Late in 2007 BHPB initiated a hostile
in wire rod for fastener making. takeover bid for Rio Tinto. The
• The continued appreciation of the battle continues, with BHPB
Chinese RMB Yuan currency recently upping its share offer and
against the US Dollar. Rio continuing to argue that it
• Chinese government actions to undervalues the company. There
reduce exports of steel and steel remains a strong probability that
products. three could become two, further
• Continued increases in Chinese tightening the stranglehold on iron
labour costs, energy, transport and ore supplies – a source of deep
sea freight. concern to steelmakers.
Another significant factor, Despite major growth, ore
already biting, is the potential for extraction still cannot keep up with
the application of antidumping demand, with some bizarre
tariffs on fasteners from China. The consequences. In Australia, drivers
deadline for preliminary tariffs is of massive mining dump trucks are
August 8th 2008. Although no reportedly being taught to drive
decision has yet been made by the more gently to extend the life of
EU, fastener production and tyres, replacements for which are
shipping lead times mean that on a two year lead time.
orders placed now will be received Additional locomotives to haul the
after the deadline. This has created ore to dock are similarly delayed.
massive uncertainty for importers Not surprising, then, that all
and necessitated spreading order loads to billets of steel along a track, which three major suppliers have been extremely
other, higher cost, sources. Conversely progressively converts the rectangular billet to robust in annual contract negotiations with
European producers are not in a position to a circular profile and draws it to wire rod of steel makers. In late February, despite strong
commit to additional production resources until required diameter. Substantial energy resistance from Chinese steelmakers, Vale
they are sure of the outcome of the consumption is required to cast steel into clinched deals with Korean, Japanese and some
antidumping investigation. billets or reheat billets before wire production.
Iron ore contract prices - Brazil to Europe
What follows is a detailed consideration of
US$ per tonne
these factors and their implications for fastener Input costs
140
pricing. As can be seen there are four key elements to
120
the process of producing wire rod for fastener
100
Producing steel production:
80
Pig iron is produced in a blast furnace using Iron Ore US$
two primary ‘ingredients’ – iron ore and coke. Coke
60
Two main methods are used to produce steel. Ferrous scrap 40
The Basic Oxygen System, accounting for Energy
20
around 60% of world production, requires an
0
initial ‘charge’ of around 25% of ferrous scrap To these should be added freight - rail and bulk 2000 2001 2002 2003 2004 2005 2006 2007 2008
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