March 11, 2008 / 4:09 PM / 12 years ago

EXCLUSIVE - Corus to explore ways to secure raw materials

LONDON (Reuters) - Anglo-Dutch steelmaker Corus, owned by India’s Tata Steel, will explore opportunities to secure “captive” supplies of raw materials to limit its exposure to global prices, its CEO said on Tuesday.

A view of the Corus steel factory in IJmuiden in seen in this September 9, 2004 file photo. REUTERS/United Photos/Files

“In the longer term, opportunities for securing captive supplies of iron ore, coking coal and other strategic raw materials will be explored,” Chief Executive Philippe Varin told Reuters in an e-mailed response to questions.

“At the same time, Corus will continue to invest in operational improvements and efficiency saving to limit the impact of increases in input costs,” Varin said.

Steelmakers have faced a huge increase in their cost of production since the start of the year as the price of key steelmaking ingredients such as iron ore and coking coal has risen significantly.

Corus itself accepted a 65-66 percent price rise for iron ore from Brazilian mining giant Vale, joining many other steelmakers in the industry.

Varin said it was ‘inevitable’ that these costs would be passed on to customers.

“Given the magnitude of the raw material cost increases ... it is inevitable that much of these increases will have to be passed on to customers,” he said.

Corus, Europe’s second biggest steelmaker, has already raised prices for most of its products for the first quarter, but Varin signalled further rises.

“As we negotiate prices and availability with raw material suppliers, further price increases may be contemplated,” he said.

DEMAND OUTLOOK ROBUST

Despite uncertainty in global financial markets due to fears of a recession in the United States, Varin said the outlook for steel demand remained robust because of strong demand from emerging markets.

“It (steel demand) is forecast to grow by around 7 percent in 2008,” he said.

In addition to rising raw material costs and robust demand, there was also a reduction in steel exports coming out of China.

“On the whole, the global steel market should remain tight in 2008 and this is generally supportive of steel price increases in 2008,” he said.

Varin said they were following the development of the London Metal Exchange’s newly introduced steel futures “with interest”.

Unlike some other steel producers including ArcelorMittal ISPA.AS and ThyssenKrupp DKAG.DE, he did not rule out using the futures market at some point.

“There could be certain situations where we could use steel futures, for example where we have surplus billets for trading,” he said.

But in terms of pricing, he did not expect any material impact from the futures market.

“Our view is that steel futures will be developed by the LME and by other organisations in a very selective way, that is, for certain products and certain regions,” Varin said.

“As the pace of introduction of steel futures will be slow, we would not expect a material impact on steel prices.”

Steel futures in the form of billets, a long steel product mainly used by the construction industry, started trading via the electronic platform and telephone on Feb. 25.

Despite a slow start, traders say price convergence between the physical market and the LME prices has been established, which they consider encouraging.

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