KEY POINTS:
New Zealand steel consumers are bracing themselves for even higher costs following news that China's largest steel maker has agreed to pay almost 100 per cent more for iron ore.
Chinese steel maker Baosteel will pay Anglo-Australian miner Rio Tinto up to 96 per cent more for its
ore supplies this year, the highest price rise in over a decade and well above the 9.5 per cent increase paid last year.
New Zealand steel users, already reeling from a series of double digit increases in steel prices since January, say the Chinese ore deal spells more of the same bad news.
"Another blow on that sort of scale is going to have a very negative influence, there's no doubt about that," said Murray Gutry, chief executive of the Hamilton-based Perry Group which runs a steel galvanising business.
Paul Zuckerman, head of Fletcher Building's steel division, said an ore price rise was expected but not as large as that.
"It's going to continue to put pressure on steel and all steel-related products going forward."
Zuckerman said consumers didn't have much choice but to use steel. "Steel is a unique product, it has great advantages in terms of its strength to weight ratio. I can't see it not being used.
"What people may do, rather than looking at other materials, is they may just slow things down a bit and see if things come off the peak."
Gutry agreed that infrastructure projects may be scaled back, as budgets were squeezed by the high cost of steel.
However, both men said that had not happened yet. Gutry said his company had noticed the slowdown in residential building, and in specific sectors such as high-end boat trailer manufacturing.
Bank of New Zealand chief economist Tony Alexander said it was highly likely price increases would flow through to everything from farm fencing wire to washing machine components.
He said the latest price rise reinforced the fact that higher commodity costs were not just a 12-month phenomenon, and firm inflation would be around for a while. "The Reserve Bank's ability to ease interest rates could be more limited than some people are thinking for the next two to three years."
Alexander said even if New Zealand produced iron ore or enough of its own steel, prices would still go up because of the international price for steel.
However, Zuckerman said price increases would be most keenly felt in imported steel products. Fletcher-owned Pacific Steel manufactured out of scrap metal, and New Zealand Steel used domestically-sourced ironsand to make its product.
