Vedanta - Indian Mining Co.

Three major factors that will keep the base metal sector buoyant for
next year -
1/ The US construction sector is recovering.
2/ Japan, the world second largest economy, has recovered
and is growing strongly.
3/ China and India, the locomotives of the world economy are still powering ahead.

Steel Prices Set to Rise as Supply Shortages Bite

By Mathabo le Roux
27 Dec 2006 at 08:55 AM EST

JOHANNESBURG (Business Day) -- Steel users will have to brace for more steel price hikes in the new year as supply shortages in the domestic market and higher input costs for certain products drive prices higher.

There is good news for some, though, with prices on high- volume products such as hot and cold rolled coil reined in by as much as 4%.

However, prices on a range of other products will be raised 4%-9%, mainly on the back of higher input costs, but also pushed up by high demand and supply shortages in some product categories, producer Mittal Steel SA said on Friday.

A rise in demand for steel products has seen Mittal increase supply to the local market to almost 75% of production, compared with half less than a year ago. The group has already had to turn to importing slab, after a fire at its flagship Vanderbijlpark plant curbed production.

However, Mittal [NYSE:MT] spokesman Tami Didiza said on Friday the group had not yet had to import other steel products.

The price adjustments, which Mittal said were in line with international trends, are effective from February.

News about the latest price hikes pushed Mittal’s share price to its highest level to date. Shares in the steel group traded as high as R97.78 ($13.91) on Friday, before settling 0.52% or 50 cents up at R97.50 ($13.88).

The biggest price increase will be on zinc-coated products, with the price of zinc having risen to $4570 a tonne in mid-November — from $3260 a tonne a month earlier, and an average of $2000 per tonne a year ago — as inventories fell.

Hot dipped galvanised products will cost 9% more and the price of colour-coated galvanised products will rise 5%.

The price of plate products will increase 7%, as high demand and supply shortages, domestically and internationally, put strain on that market segment.

Long-steel products such as structural sections and bars (including window sections) and specialised sections will increase 4% and 6% respectively, but rebar for construction, wire rod, billets and blooms, rails and fencing products have been spared, and will see no price adjustments.

The group is using the pricing model it said it had adopted in the place of its notorious import parity pricing model, which was the subject of a hearing before the Competition Tribunal. A ruling on the matter by the body is expected early in the new year.

International steel prices for most products are tight. However, the overall movement of prices was sideways, while the strengthening of the rand also contributed to some price reductions, the group said.

Recently, two trade unions, the National Union of Metalworkers of SA (Numsa) and Solidarity, voiced their displeasure over alleged excessive pricing by Mittal.

Both unions have threatened to embark on mass action in an attempt to force the steel producer into adopting a more equitable pricing model.

Numsa has already filed an application with the National Economic Development and Labour Council for planned mass action scheduled for next year.