After months of activity and speculation, the normally unexciting world of iron ore mining has thrown a cat amongst the pigeons. In a break with four decades of practice, there is a new paradigm in pricing iron ore. In place of annually negotiated contract prices between ore miners and steel producers, sales will be based on spot pricing.
While there is nothing particularly unusual about this, the petroleum market made the same transition long ago, this is an important economic development. Analysts expect prices to rise 80 – 100% this year over last. With steel comprising some 70% of global metal consumption, this is going to represent serious cost push inflation through the supply chains of many classes of durable goods. Auto manufacturers are already sounding the alarm. Bloomberg has a brief article on the matter. Financial Times subscribers can read much more extensive coverage there.
Meanwhile, the Association of American Railroads reported today that freight traffic is recovering nicely, as “18 of 19 carload commodity groups showed gains from a year ago, with 13 showing double digit percentage increases.” The largest increase was in metals.
Score one for the inflationists.