One of the consequences of the conflict between Russia and Ukraine: soaring steel prices

Recently, a failed tender for a bridge construction contract in Rome highlights another consequence of the conflict between Russia and Ukraine: soaring steel prices.

It is reported that earlier, due to the turmoil in the steel market, potential bidders were worried about being implicated, so no one was willing to take over the 146 million euros ($163 million) contract to build Ponte dei Congressi bridges. In the three weeks after the escalation of the conflict between Russia and Ukraine, European benchmark steel prices soared 51 per cent as goods from the two countries were withdrawn from the market.

This is a problem for the recovery of the continent, as steel is still an important part of the modern economy. Rising steel prices, coupled with soaring electricity costs, have left European manufacturers and builders with tough choices: digest the pain, pass it on to customers, or curb production.

Europe relies on Russia and Ukraine for 1/5 of its steel imports, and soaring energy costs have forced local steel mills to cut production, exacerbating the impact.

"this is at the heart of economic activity in major economies such as Europe," said Tom Price, head of commodity strategy at Liberum Capital. "the impact will spread to the supply chain and damage economic activity as a whole."

Angelica Donati, head of business development at Donati SpA, a Roman construction company, said the conflict between Russia and Ukraine had led to shortages of different grades of steel, including weathering steel for construction, after previous supply chain disruptions.

Donati said: "weathering steel mainly produced in Ukraine is not available at all at present. This means that wherever weathering steel is used-for example, weathering steel is the main component of Italian viaducts-production will inevitably stop. "

Grant Sporre, an analyst at Bloomberg Intelligence, believes that further increases in steel prices may lead to demand disruption. Among them, the automotive and consumer goods industries are likely to be the hardest hit.

"all of a sudden, the cost of car production has increased by 700 to 800 euros," Sporre said. This will deplete the profits of manufacturers, so manufacturers have no choice but to raise prices. "

At the same time, other regions, including the United States, have also been hit by the loss of key products. Since the conflict between Russia and Ukraine, benchmark US steel prices have risen by about 56 per cent again after plummeting from last year's record levels. Electric arc furnaces account for about 70 per cent of US steel production, and more than half of its main raw material pig iron comes from Ukraine and Russia.

"everyone is in a hurry because of uncertainty," Timna Tanners, an analyst at Wolfe Research, said in a telephone interview.

The dwindling supply of pig iron is pushing up the price of another raw material, high-grade scrap, as other arc furnace producers, such as Turkey and Egypt, seek to lock in supplies.

Heidtman Steel Products Inc. "if they can't get pig iron from Ukraine and Russia, they need to get scrap, and the best source of scrap is the United States," said Dan DeMare, the sales director. Therefore, in order to ensure the domestic supply of scrap, prices must rise-which is why the US market forms a price floor. "

As the world's largest steel market, the epidemic in China has also brought upside risks to the global steel market. According to Mysteel, a local researcher, the blockade in central Tangshan forced the partial closure of 19 blast furnaces in the area, causing prices to rise.

In theory, this could bring some relief to steel mills elsewhere in the world by depressing the cost of coal and iron ore. But that has not yet happened-prices of both commodities have risen this year on expectations of growth in Chinese demand.