Development on the raw materials markets
The spring of 2010 marked a watershed point on the global raw materials markets. As of April 1, concurrently with the beginning of the voestalpine business year 2010/11, the leading iron ore and coking coal suppliers unilaterally departed—from the legal perspective with a thought-provoking unity—from the annual pricing system, which had been successfully in place over many decades, in favor of quarterly price agreements. Therefore, the spot market prices in the previous period will now be the basis for determination of the contractual quarterly prices—in particular for iron ore. The launch of the new price mechanism was associated with the attainment of historical record prices for those raw materials most crucial for the steel industry. In April 2010, just for iron ore alone, the price went up by 70%, with increased demand due to the revitalized economy given as formal justification for the price hike. The situation was additionally exacerbated by individual national export restrictions (for example, from India). Since the fall of 2010, prices for iron ore have stabilized to a certain degree, albeit at the high level they had reached.
In addition to supply-side measures by mining operators, the situation on the raw materials markets in recent months was significantly impacted by environmental disasters in important mining regions. For example, in the early part of the 2011 calendar year, flooding in the northeastern part of Australia resulted in a deterioration of the supply situation for coking coal, followed subsequently by the highest price level ever.
In contrast to the situation for ore and coal, the development of price and supply for scrap and alloys in the course of 2010/11 was largely uneventful.
Raw materials strategy in the voestalpine Group
Despite the extremely challenging situation with regard to iron ore and coal, the timely supply needed for the voestalpine Group’s steel production facilities was never in the slightest danger of being impaired as voestalpine has long consistently pursued a different strategy than most of its competitors, who for the most part use only one or two raw materials partners. The key point of the voestalpine strategy is a consistent diversification of sourcing options in all raw materials categories, which will be expanded even more in the future to avoid any vendor dependencies. Derivative instruments will be increasingly used to mitigate exposure to greater price volatility due to quarterly pricing in the raw materials sector.