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What Influences the Steel Prices on the World Market - Case Study Example

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This study discusses the question of steel prices of the economic world. The writer of this study 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…
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What Influences the Steel Prices on the World Market
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Download file to see previous pages 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 the subsequent product and thus on several price indices. In the extreme, certain business areas can be largely affected by shortages and price increases, strongly influencing their overall profitability and ultimately, in certain cases, threatening their survival.  
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 have 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 prime cause. Till a few months back it was presumed that flat product prices were directly related to the movement in the global market, while the long product prices are more influenced by domestic demand and supply phenomenon and the linkage, if any, works indirectly and with a time lag. This appears to be no longer true. With the onset of globalization and widespread use of electronic media, the fluctuations in the global market have an instantaneous bearing on the domestic market. Steel trading community with its ready access to international market events influences market perception to a large extent. The inflationary impact is imported via raw materials also. The cost of those finished steel items dependent on imported inputs like Bars & Rods (influenced by imported melting scrap prices) and HR (imported coking/ non-coking coal) is enhanced and reflected in higher market prices. During Sept'03 and August, '04 imported coking coal prices recorded at around 140 percent enhancement leading to a huge burden on all those steel manufacturers who are finalizing deals on long term perspective. During the same period, the imported price of melting scrap has gone up by 27 percent. The cost of production of steel, both long and flat, is thereby adversely impacted. The point to be noted here is the absorption capacity of the market. If demand for these steel items had been poor, the market would not have warranted such hike and the prices of finished items would have been rolled over. The resistance to price hike is only strengthened by low demand which has not happened.  The factors so far identified are upward movement in global steel prices, rise in imported input prices and high demand growth -all these have sustained a level of steel prices in India which is unprecedented. A very attractive export market, particularly for the flat items, exerts an upward pull in the prices of domestic steel. ...Download file to see next pagesRead More
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