On the raw materials markets, the business year 2009/10 was characterized by two completely opposing developments. While in the first half of the 2009 calendar year the short-term prices for iron ore, coking coal, and scrap fell by about two thirds compared to the peak prices in mid-2008, subsequently, the situation was reversed very rapidly.
Beginning in the summer of 2009, the European steel industry was starting to come out of the economic trough. In the following months, production was quickly resumed in plants that had been temporarily shut down, resulting in a sharp ramp-up of production. Together with the economic uptrend in China that began in the first half of 2009, by the end of the year, this had resulted in price increases on the spot market for iron ore, coking coal, and scrap of up to 50%. Another massive rise in the short-term raw materials prices occurred in the last three months of the business year 2009/10, again with increases of up to 70%. Due to the severe discrepancy between the price level on the spot market and that of the annual contracts (benchmark prices) that arose from this development, the major mine operators demanded an enormous increase of the annual prices to be negotiated for April 1, 2010, and even called the practice of entering into annual contracts into question.
As a result, the benchmark system, which had been the norm for iron ore and coking coal for the last several decades, was indeed subsequently abandoned. Although long-term supply agreements are still being entered into relative to quantities, with regard to prices, most of the mine operators are now only prepared to sign quarterly agreements (on an index basis).
With respect to the supply situation in the voestalpine Group, it can be generally stated that supply of all necessary raw materials was assured for all locations and at all times throughout the business year 2009/10. This is a result of the Group’s procurement strategy that has been pursued consistently for many years; its core is a comparatively broad supplier portfolio, particularly with regard to coal and ore, thus avoiding one-sided dependency on individual mining operators. Furthermore, the strategy includes the accelerated expansion of domestic supply sources for ore, which are currently at 20%.
In the future, the voestalpine Group will have a somewhat lower volatility of volume in comparison to other steel manufacturers due to its comparatively broad supply base, but because of the departure from the annual price system, the Group will not be able to avoid adjustments of the contractual terms at the customer end, if only for risk policy considerations alone.
The voestalpine Group is optimistic that it will be possible to pass on the soaring raw materials prices to the market within a foreseeable period of time and, against the backdrop of the new framework conditions, to achieve a sustainable pricing model vis-à-vis our customers.
