The year under review was marked by sharply escalating price volatility among the raw materials used for steel production.
After massive price hikes starting in the business year 2010/11, particularly for iron ore—indeed, prices soared by 70% just in April 2010—metallurgic coal also became more expensive at the start of the business year 2011/12, primarily due to the flooding in Northeastern Australia and the temporary supply shortage triggered by this event.
In keeping with the cyclical decline in the demand for steel, by the fall of 2011, prices fell by up to 25% for coke, coking coal, and, ultimately, for iron ore as well, thus entering into a generally more volatile phase. By contrast, price trends for scrap were considerably more moderate over the course of the year. All in all, raw materials prices as a whole remained at high levels in the business year 2011/12.
On the producer side, the trend toward ever shorter pricing periods for ore and coal—up to current daily prices—also continued unabated. Meanwhile, however, steel companies have generally succeeded in structuring contracts with customers in a suitably flexible manner, and are thus doing a better job than in the past at hedging against short-term price fluctuations for raw materials.
Over the medium to long-term, prices for the most important raw materials are expected to progress at a continued high level, yet one that is markedly below the previous peak values, especially for coal, coke, and iron ore. Driven by the demand and price conditions of the past several years, on the supply side, both established and new suppliers have tapped into extensive additional mine capacities that will gradually go into operation over the next few years, on the one hand. On the other hand, a number of steel companies have greatly accelerated their reverse integration at the same time. Both factors are expected to have a dampening effect on prices over the medium term.
The long-term strategy of the voestalpine Group aims for a continued consistent diversification of sourcing options in all raw materials categories, in order to prevent dependencies on individual suppliers. There are no plans that reach beyond the current extent of the reverse integration process.
