The preliminary memorandum of understanding (MoU) signed by the United States and Iran could ease the energy and fuel inflation that continues to stifle the steel sector's trade and profitability.
On June 17, the two countries signed a memorandum of understanding, which immediately put an end to hostilities. They now have 60 days to negotiate a final, binding peace agreement. The memorandum of Understanding stipulates that Iran must provide free passage through the Strait of Hormuz for commercial vessels for at least 60 days, with full restoration of traffic within 30 days.
Iran closed the strait on February 28, blocking the shipping route that carries almost 30 million tons of bulk cargo per month and 20% of the world's oil and LNG supplies. Expectations that this supply route will remain open in the long term have already led to lower oil prices. Brent crude oil prices, which peaked at $114 per barrel on May 4, fell below $79 per barrel on June 16, the lowest level since March 2.
Higher fuel prices lead to higher costs for steel buyers
Lower fuel prices would bring relief to steel market participants around the world. Respondents from the European Parliament in North America and Europe expressed growing concern about the increase in the cost of road transport this month. In the United States, higher fuel prices combined with a shortage of drivers has increased the cost of road transportation. According to the expense component of the Cass Freight Transportation Index, the cost of freight transportation in the United States rose 7.5% year-on-year in May after rising 3.5% in April.
In Canada, the federal government temporarily suspended the fuel excise tax in April to provide short-term benefits to road transport operators. It stated that the temporary measure would be in effect until September 7.
European steel buyers told MEPs that road transport in recent months, fuel prices in the CES countries have increased by 20-30 euros per ton. As in the United States, the shortage of drivers has exacerbated the problem of rising fuel prices, as well as significant disruptions caused by the modernization of the railway network in Germany, which has reduced railway capacity.
Market participants in Central Europe indicated that, in addition to rising steel prices, these problems led to a slowdown in purchases this month. This has also reduced the attractiveness of materials from Southern European manufacturers to buyers in the region.
- This article was first published in the June issue of the MEPS International Steel Review.
