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Australian steel prices – is steel still viable?

Australian steel prices have seen huge fluctuations in recent years. We explain why steel is getting more expensive and what that means for your business.

Not only is steel getting an ever-increasing bad rap for its detrimental effect on the environment, but its fluctuating costs also make it far more difficult for trades to quote a job. As advancements in material technology have produced viable steel alternatives such as glass fibre reinforced polymer (GFRP) to replace steel in major construction projects, the question remains - is steel still viable?

Iron ore producers

We can’t talk about Australian steel prices without first looking at what’s happening with its ‘main ingredient’, - iron ore. The largest producers of iron ore in the world are Australia, China, Brazil, Russia, and Ukraine.

Australia produced 900 million metric tons of iron ore in 2020, an increase of 83 million metric tons over its 2015 production. Although China is Australia’s largest customer for iron ore exports, China itself produced an estimated 340 million metric tons of raw ore in 2020. In the 2021 financial year Australia exported $126.8 billion A.U. worth of iron ore to China.

In 2019, Russia exported $2.19 billion U.S. in iron ore with most of that going to Ukraine ($565 million U.S.). At the time of writing – March 2022 – the relationship between Australia and China is strained, and Russia has invaded Ukraine, making an already volatile market quite unstable.

The price of iorn ore

The cost of iron ore has fluctuated hugely over the last twenty years. For example, in 2003, one dry metric ton unit (dmtu) of iron ore cost $30 U.S., but increased to $168 U.S. per dmtu in 2011.

In March 2013 one dmtu was $139.87 U.S. but was back down to $40.50 U.S. per dmtu by December 2015. The dmtu in July 2021 was $214.14 but dropped the following month and was at $155.43 U.S. per dmtu in December 2020. Most recently, in January 2022, iron ore was valued at approx. $133 U.S. per dmtu.

Pandemics and politics

There are many reasons for these fluctuations in the price of iron ore, the most prominent in recent years being the fact that the COVID-19 pandemic which created a perfect storm of high demand and low supply. During the pandemic, many governments across the world, ours included, rolled out stimulus packages to keep their economies afloat, much of which was directed towards construction. This led to a huge surge in demand for steel products from steel producers who were already struggling to satisfy a backlog of orders created by factory shutdowns during lockdowns and staff shortages. In Australia, this resulted in the worst material shortage in over 40 years.

Global politics have also influenced the cost of iron ore and steel. For example, in 2021 trade tensions between Australia and China resulted in some Chinese importers stockpiling iron ore, restricting supply and pushing prices upwards.

While Russia and Ukraine are not major suppliers of iron ore to China or Australia, they are responsible for the export of iron ore to other European countries. Upsetting this balance has a knock-on effect for the global market. “Any prolonged military campaign will severely impact annual iron ore exports totalling almost 70 million tonnes from Russia and Ukraine, eventually tightening the global balance,” said Atilla Widnell, managing director at Navigate Commodities in Singapore.

The cost of coal

Another key resource for steel production, coal, has also seen a huge price increase in recent years. Brazil, the world’s 2nd largest producer of coal, had many of its factories close due to the pandemic, resulting in a significant shortfall in production. In October 2020, China placed an unofficial ban on coal imports from Australia, resulting in the price of coal doubling over the next 6 months.

And most recently with the escalation of the Ukrainian invasion by Russia, Australian coal producers have had increased demand from Ukraine and countries like Poland that were previously reliant on Russian supplies. In fact, in March 2022, the Australian government committed to donating at least 70,000 tons of thermal coal to Ukraine to help meet its energy needs.

Transport and shipping

The pandemic has also resulted in a reduced capacity to move iron around nationally and internationally. These transport and logistics issues cause delays in steel and iron delivery and the resulting extended lead times also drive costs up (due to some contractors over-ordering and hoarding).

The restrictions placed on many mining and manufacturing workers from travelling both interstate and overseas for work has also caused in delayed steel production.

Australian steel prices

The above graph shows the dramatic increase in the global cost of steel in the last year. And the Australian market has not been spared these price hikes.

Government stimulus packages and major infrastructure projects in Australia such as upgrades of the Metro system in Melbourne, Sydney and Perth as well as the Inland Rail project means that there continues to be a strong demand for steel in Australia.

What the increase in Australian steel prices means for you

The shortage of steel supply combined with high demand means that prices are likely to stay inflated for the foreseeable future. This also means longer lead times as steel producers are likely to place rations on steel purchases.

What are some cheaper alternatives to steel?

As Australian steel prices and the global steel market seems set to remain volatile for some time, cost-effective alternatives are becoming more attractive. As well as being cheaper in many cases, some of these substitutes also win the argument for more sustainable practices. A few of these alternatives are carbon fibre reinforced polymer (CFRP), basalt fibre reinforced polymer (BFRP) and glass fibre reinforced polymer (GFRP).

There is a growing body of evidence showing that steel alternatives like GFRP can provide adequate structural performance when used as rebar in reinforced concrete or structural members. Their enhanced durability, non-conductivity and chemical resistance are proving very popular in construction sites across the US, Canada and Australia.

Synthetic fibres are also much cheaper than steel fibres, in direct cost comparisons and also because a far lower density of synthetic fibres than steel are required in the concrete mix. And because steel is far lighter than steel (weighing a quarter less) it’s far more portable, making it much safer to work with. Plus, its lighter weight allows for faster installation and reduced transportation costs.

Overall, the argument to replace steel with eco- and budget-friendly replacements seems to weigh heavily in favour of alternatives like GFRP.

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