The world market has become redundant. At a capacity of 2.3 billion tons per year, only 1.7 billion tons are produced. Thus, it is impossible to explain the threefold rise in prices to the level of $ 1800-1900 per ton of hot-rolled steel using “classical” economic laws. Let’s try to understand the phenomenon.
About $ 500-600 per ton – this is the “historical” price level observed over the past decade. There was enough for everyone, both consumers and manufacturers. The surplus factories were mothballed, in fact, they are now idle.
“The utilization of the global steel production capacity is about 80-82%” – recently announced the situation on the market owner of “Severstal” Alexey Mordashov…
Foreigners are of the same opinion. The British analytical agency IHS Markit believes that there is no lack of capacity. But other analytics, both “over the hill” and in our country, is lame. That is, he is broadcasting blatant nonsense. But not because everyone is so stupid.
In 2019-2020, steel prices fell. No wonder – consumption has been declining. So, over the past year, according to the most optimistic data, it fell by about 7%, although there are also tougher estimates. The reason is simple – the shutdown of a number of industries during the period of exacerbation of COVID-hysteria. The demand has not recovered so far and there are no prospects for this.
Moreover, the wild rise in prices this year has only exacerbated the situation. Steel that has risen in price has killed many large projects, primarily infrastructure projects. Both big business and the authorities of the whole world have problems with financing construction projects, many of which are either mothballed or completely postponed until better times. And, despite the bravura analytical reports of a clearly “ordered” character, it will be even worse in the future.
Have the metallurgists decided to cut the branch on which they are sitting on their own? The industry has not been in a fever for a long time, but there were no exciting prospects either. This is evidenced, among other things, by the lack of large-scale investments and innovations. There are new technologies, but their introduction is not yet needed by anyone – everyone was fine anyway. Both steelmakers and buyers of their products.
The thing is that steel companies have nothing to do with the level of prices for their goods. The cost of the metal is formed on the stock exchange, but the actual metal itself is not traded there. Speculators “drive the air”, that is, buy and sell contracts that have long been more than indirectly related to the commodity market.
It began once very progressively. A futures contract fixes the purchase (sale) price of a commodity on a specific date. That is, the consumer of metal has the confidence that he will receive it when he needs it. You can plan your business. Likewise, with a steel manufacturer who is concerned about keeping nothing in stock. An option is almost the same, only, unlike a futures, it gives an opportunity (but not a strict obligation!) To buy or sell a batch of steel on a particular date. Also good, even better – more possibilities.
But for a long time, these fixed-term contracts do not provide for the supply of goods and counter payments for it. At the closing date of the contract, the parties – stock dealers – only exchange margins based on the current asset rate. Whoever “bought” more than this quote lost. On the contrary, I won.
The market of futures contracts in terms of the amount of funds circulating there is dozens of times higher than the turnover of trading in real steel. This is exactly how, on the stock exchange, depending on which speculative positions – buy or sell – more money is invested, the price of the metal is determined. Whether there is one in nature or not, at the same time, nobody cares.
It is quite obvious that the “bulls” (speculators playing on the rise in exchange rates) artificially lifted steel prices to completely unreasonable values. As far as money is concerned, it is not a problem. The main players in world exchanges are the owners of the US Federal Reserve System (FRS), a non-government dollar issuer. As much as necessary, they will “print” as much, that is, they will create them in the form of entries on electronic invoices. It’s not a problem.
Why this is done is also quite understandable. Instead of virtual dollars, with which not everything is going well – there are too many of them printed – the owners of the Fed are going to once again arrange a redistribution of property. Already on a global scale.
During the so-called “Great Depression” about 90% of American industry “stuck” to their hands. And the lion’s share of land. Everything was done simply and ingeniously: after the First World War, banks controlled by the Federal Reserve System distributed loans to Americans – a lot and inexpensively. With a “floating” interest rate, that is, it could be changed at any time. But people have been taught that it is always extremely low. Industry and agriculture were actively developing. And at one “fine” moment – it happened in October 1929 – a significant portion of the money was withdrawn from circulation with a simultaneous rise in interest rates on loans. Everything went bankrupt – both factories and farms.
It was then, during the years of the “Great Depression” that General Motors and other American companies changed owners, and the farmers were driven off the land. What is “defarming” in the United States is still remembered. As well as the calls of the great designer and entrepreneur Henry Ford to arrange one big pogrom in the country. From hunger and actions organized by bankers gangs of gangsters in the United States, according to various estimates, killed from eight to 12 million people.
“According to the American Federation of Labor, in 1932 only 10% of the workers remained fully employed … Almost everyone in Russia, thanks to Svanidze’s cares, knows about the two million kulaks (“ special settlers ”) resettled by the communists, who were provided, we will note, in places of resettlement either with land , or work. But few people know about the five million American farmers (about a million families) at the same time, driven by banks from the land for debts, but not provided by the US government with neither land, nor work, nor social assistance, nor old-age pension – nothing. ” , – the historian writes Boris Borisov…
Now something similar is being repeated, but on a global scale. In addition to metals, other goods suddenly began to rise in price, including food, which, given the obvious excess of world agriculture, looks just monstrous. Banking bulls are plunging the planet into economic hell. On the ruins of bankrupt companies and corporations, they plan to arrange a total redistribution of property and seize the main raw material assets.
The resistance is already underway. So, in China, the government actively regulates domestic prices for metal, which there are fundamentally different from the cost of steel, which is sent to the external market. And export was squeezed – in May of this year, all privileges for supplies abroad were canceled.
“China is a very closed country, despite the fact that anyone can come there. I have never been able to find out how much my Chinese counterparties receive steel. It was just interesting. But the prices for products made from it have risen quite moderately, cannot be compared with what is happening in Russia, “says businessman Igor Korolev…
It should be noted that at the moment the ferrous metallurgy of the Celestial Empire is mainly based on imported raw materials. He is brought from Australia and not only. Ore has also risen in price, but its contribution to the cost of steel is only about 30%. There are reserves to contain prices. If necessary, the PRC can switch to its own raw materials. It is of lower quality, but there are enough deposits. Movement in this direction has already begun, and given that China produces more than half of the world’s steel, a battle is coming.
It is easier for Russian metallurgical companies – they all have their own high-quality resource base: both for ore and for energy resources. However, at the same time, their pricing policy, especially in the domestic market, is clearly destructive. With a low ruble prime cost, which has not changed, prices have risen significantly. And in whose interests the metallurgists are acting there is no doubt. All their funds are kept in foreign banks, at any time they can be arrested there under any plausible pretext. The “oligarchs” are controlled – and they dance to a foreign tune. Therefore, the conversations that began about six months ago about the need to nationalize the Russian ferrous metallurgy are quite a sensible idea.