Unlike oil prices, which suffer from fluctuations dictated as much - if not more - by geopolitical parameters as by strictly-economic factors, steel prices are basically determined by economic criteria and exclusively by the law of supply and demand.

Yet the curve followed by steel prices over the past year or so has been simply staggering, with prices during 2004 recording increases ranging from 25% to 75% depending on the particular steel product, and this pattern looks set to continue during the first half of 2005. These price hikes, however brutal and spectacular they might appear, can in no way be termed an epiphenomenon but actually correspond to a significant modification of the supply-and-demand fundamentals.

The prime reason underlying this development is the « Chinese Factor », with steel markets subjected to extremely powerful pressures due to a 14% annual growth in Chinese demand for steel, translating into over 195 million tonnes of iron ore (representing 36% of world imports) absorbed by Chinese industry, and causing saturation of maritime transport capacities. Whereas in 1999 world steel production experienced overcapacity to the tune of 200 million tonnes or more, this figure in 2004 was down to only 65 million or thereabouts, the lowest recorded over the past twenty years.

This « Chinese Factor » compounds with a number of economic and industrial circumstances (strikes at some iron-ore mines in particular) to accentuate the price drift which for 2005 will translate into a + 20% to + 50% hike announced by steel makers for the first halfyear, even as a steel shortage looms large on the horizon at least for non-priority customers forced into relying on spot markets for their procurements.

Right now some industrial branches are feeling full-blast the impact of these spectacular hikes, including in particular the rail industrial sector which, it hardly needs stating, relies heavily on steel products for the manufacture of a whole range of train and track components (switches, doors, wheels, axles, etc...).

As things now stand the incremental price rise for some products, by reference to their actual cost price, already top 30% for rails, range from 3% to 30% for rolling-stock components and average 1% - 1.5% for trains and locomotives. All things being equal in other respects, such increments would only constitute a relative prejudice but for the fact that they are set against a backdrop of concomitant financial difficulties for all players in the French rail industrial sector, be they equipment suppliers, manufacturers ,or public-transport systems as their customers. It is worth recalling here that over and above the chronic and financial constraints faced by SNCF and RFF (representing a combined debt burden of € 36 billion plus annual interest payments of € 4.5 billion at end 2003), the leading railway rolling-stock manufacturers, and some of the major equipment suppliers, are losing money.

This situation might appear all the more paradoxical or surprising as the world rail market is growing by 4% annually ,and as the order books of the French industrial rail sector are relatively full, courtesy of some excellent export-led results. Yet ironically in France today the entire rail sector is in crisis.

For the French, not to say European, rail manufacturing sector, and leaving aside the problems encountered along the chain (overcapacity, productivity, aggressive competition from Asian and CEEC countries...), these savage and lasting steel price hikes constitute a deeply disturbing, and therefore highly worrying factor.

The French rail industrial sector, squeezed between an upstream steel market characterised by price explosion and incipient shortages, and a downstream market constituted by chronically-lossmaking public operators involved in programmes for drastic reductions in the procurement prices of their railway products and equipment, is well and truly caught in a pincer movement.

Given the prevailing situation, the French Railway Industry Association (FIF) takes the view that a round table between the different sector stakeholders - modelled on the event recently staged by the Ministry for Industry between the players (mechanical industry, equipment suppliers, manufacturers) of the automotive sector - must be arranged at all costs.

In this particular instance, given the exceptional circumstances and the oligopolistic nature of the steel market on the one hand, and bearing in mind the condition of the rail transport market on the other, clearly the State is duty-bound to ensure that solutions in terms of “burden sharing” are found as soon as possible, which is tantamount to saying that the incremental costs recorded might perhaps be passed-on down the entire railway stakeholder chain.

. Failing any such initiative there is a genuine risk - and this is not an alarmist prediction in any way - of an entire industrial sector being sacrificed through ipso-facto blindness to the very serious economic and social implications that might ensue for an industry which has long - and deservingly so - been not only a “shop-window” of our know-how but also one of the key poles of our country´s competitiveness in international markets.