A increase of nearly 100% increase in iron ore prices has led to fears that steel prices could also be set to rocket.
Davis Langdon, in its April Iron Ore and Steel Cost Briefing, said steel prices could “rise by as much as a third”, following last week's iron ore price hike.
Raw material price increases have already resulted in a 10% increase in steel production costs but there may be more to come, warned Davis Langdon.
Iron ore is one of the key ingredients in steel production alongside coking coal and scrap steel, which have also seen substantial price rises this year.
Davis Langdon's report said: “The increase in iron ore prices was widely anticipated and the price rises announced by Corus in the UK so far this year undoubtedly include some of this increase.
“The concern is that cost inflation will lead to a sharp increase in steel prices, impacting on the viability of construction projects at a time when the market is just stabilising.
“There remains plenty of capacity in the steel market which will, to some extent, constrain the ability of stockholders and sub-contractors to fully pass on the cost increases sought by steel makers. UK construction steel volumes are more than 40% off their peak, and soft demand is likely to limit the ability of stock-holders to push 100% of manufacturers’ increases.
“However, as demand improves, steelmakers and stockholders will be progressively more successful in passing these costs down the chain.”