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Contracts may need to be renegotiated due to billet price rise

The price of billet, used in many types of steel for construction and new infrastructure developments is increasing rapidly, according to a number of recent reports from Steel Business Briefing.

The rise is leading to fears that some construction and infrastructure contracts may need to be renegotiated.

Concerns are evident from buyers and traders at the current developments in both billet and long products (rebar and wire rod) markets.

Billet prices are strengthening and availability is tight on the one hand, but at the same time demand is not so strong.

Billet export prices from Russia and Ukraine, the international benchmark suppliers, have edged up $30-40/tonne (£20-£26.50) in the last three weeks, driven by actual and anticipated higher raw material costs.

As most producers in the Former Soviet Union have full books for the next few months, there is little availability, according to Roger Manser, managing editor of Steel Business Briefing.

Black Sea prices are now “starting at $500/t fob,” (£330/t fob) he said, but availability is low.

The higher raw material costs reflect in part the winter shortage of scrap and other raw materials, and with some mills cutting output by up to a third.

They also reflect higher iron ore prices: spot iron ore is currently around double last year’s annual contract prices.

Rising raw material costs in 2010 are likely to slow any recovery in the steel industry in Europe and North America.

Mr Manser said: “Costs and prices could be out of sync for much of the year; and this will leave many buyers unclear about future prices and hence only take what they need for immediate use.”