|How Do Steelmakers Spell Relief? I-N-C-R-E-A-S-E S-U-P-P-L-Y|
|Topic||Supply and Demand|
|Key Words||iron ore, steel, price, demand, supply.|
|News Story||Since 2000, the price of a metric ton of iron ore has almost tripled, from about $30 per metric ton to over $80. And there's no relief in sight for steelmakers, the users of the ore.
Demand continues to outpace supply, so much so that ore suppliers are pushing its mines as much as possible, and are expanding production as quickly as they can. Those firms are hiring up so much labor, though, to meet the production increase that shortages have occurred.
Steel firms have actually sought out the protection of the government. Indian firms are asking the government to limit the amount of exports of ore, leaving more for internal usage. The Chinese have made it more difficult for smaller steel firms in China to import the ore, making it easier for the larger firms to purchase.
Rio Tinto, one of the largest ore mining companies in the world, is expanding production as quickly as possible. It plans to double the amount of railroad tracks it has by the end of 2007 - making it the largest private railroad operator globally. And its costs are increasing. New locomotives for the increased rail network are behind schedule, and construction costs continue to increase. Further, production delays can be caused by having to apply for environmental permits. Such permits are being held up because there aren't enough people to help process them; they have left work to drive trucks for the mining companies.
At the same time that Rio Tinto spends all of this money, it is still looking in the long term for production increases. Once the increased production lines come online, they will then have to deal with the backlog, and then try to get ahead. Steel will remain expensive for some time to come.
|Source||"Shock and Ore." The Economist. January 4, 2007.|
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