How Does the Global Supply Chain Affect Steel Prices Per Kg?

Steel is the backbone of modern infrastructure, construction, and manufacturing industries. From skyscrapers to pipelines, roads, it has numerous applications in different forms. However, steel pricing is far from stable—particularly the steel price per kg. As a globally traded commodity, the steel price per kilogram is intricately linked to the complex, interconnected web of the global supply chain. Any disruption or change in one part of the world can have a domino effect, causing significant volatility in steel prices globally.

Wondering how this happens and how knowing these factors can help businesses in the construction and manufacturing sectors, forecast costs, and optimise procurement strategies. Here’s a breakdown of the key factors within the global supply chain that influence the cost of steel.

1. Raw Material Availability

Steel production begins with raw materials like iron ore, coking coal, and scrap metal. These materials are sourced from different locations, with major manufacturers located in a few key countries.

• Iron Ore: Australia and Brazil are the largest suppliers of iron ore. A cyclone in Australia or a mining strike in Brazil has an immediate impact on the global supply of iron ore.
• Coking Coal: Export restrictions from Indonesia or Mongolia create shortages of coking coal that further affect the steel mill operations, as it works as the fuel in the mills.
• Scrap Metal: Increasing demand for recycled steel in Europe and the U.S. pushes global scrap prices up.

When the cost of these raw materials increases, mills in India transfer these higher expenses to buyers, resulting in higher steel prices per kg.

2. Transportation and Logistics

The journey of steel from raw materials to a finished product and finally to the customer is a long process with big logistical challenges. The cost of this process is a significant component of the final price of steel.

• High Freight Rates: Rising container and bulk cargo charges increase landed steel costs.
• Port Congestion: Delays at critical ports in China or Europe affect shipment timelines, causing increased steel spot prices.
• Shipping Routes: Disruptions in the Suez Canal, Panama Canal, or Black Sea increase delivery times and costs.
• Fuel Prices: Fluctuations in global fuel prices directly impact the cost of shipping by sea, rail, or road. A spike in oil prices increases freight costs, which is further passed on to the steel price per kg.

Logistics challenges make steel procurement unpredictable, especially for import-dependent markets like India and Southeast Asia.

3. Trade Policies and Tariffs

International relations and government policies can significantly disrupt the free flow of steel and its components.

• Tariffs: In 2018, the U.S. imposed tariffs on Chinese steel imports, pushing global prices higher. The ongoing tariff war is another example where the tariff has been increased to 25%, directly affecting the final steel price. 
• Export Bans: Countries like China sometimes restrict steel exports to secure domestic demand, which creates a shortage in importing countries and causes a price hike due to a demand-supply imbalance.
• Quotas: Europe often imposes steel export quotas to protect local industries, altering global trade flows and causing steel price fluctuations globally.
• Political Instability: Political conflicts or instability in a major steel-producing region can halt production and disrupt established trade routes, causing sudden price spikes and market uncertainty.

4. Global Demand Fluctuations

The fundamental economic principle of supply and demand is one of the most significant influencers of prices. However, in the context of steel, demand and supply are truly global in nature and directly affect the steel price per kg. 

• Boom Periods and Economic Growth: During boom periods in sectors like infrastructure, construction and automotive, demand for steel goes up and drives up prices.
• Slowdowns and Oversupply: On the other hand, a global economic slowdown or recession can lead to a drop in demand for steel. It also causes a state of oversupply, and to move their inventory, producers are often forced to lower steel prices.

5. Supply Chain Disruptions

At times, unforeseen events often create sudden shocks in steel pricing.

• Pandemic Impact: COVID-19 shutdowns halted production, congested ports, and caused steel prices to spike globally.
• War & Conflicts: The Russia-Ukraine conflict disrupted exports of pig iron and semi-finished steel, triggering global shortages.
• Natural Disasters: Cyclones, earthquakes, or floods, affecting mining or shipping hubs, reduce supply availability.

Conclusion

The global supply chain plays a pivotal role in determining steel prices per kg. From raw materials and freight costs to energy, tariffs, and global events, every link in the chain has a direct impact on the price of steel. Businesses in construction, infrastructure, and manufacturing must track these variables to anticipate fluctuations and negotiate better procurement deals.