China increasingly is able to influence the price of raw materials in the world-wide marketplace...
Steel-Price Rise Defies Forecasts
Despite predictions that world-wide steel prices would remain weak for the rest of 2010, they have started to climb for several types of the metal used in products ranging from ships to tin cans, appliances and oil pipelines. The recent increases, which follow a summer of soft prices, are as high as 12% and as low as 1%, depending on the kind of product and the location. They reflect cutbacks in China as steel producers there lower output to meet the government's year-end energy-savings target.
The first graph represents the steel market in equilibrium...
This second graph illustrates the highlighted portion from the quote above. The supply curve shifts to the LEFT ("Supply 1") representing a decrease in SUPPLY. We know the supply curve shifts to the left because as a result of the Chinese action, at EVERY price there is going to be LESS quantity supplied RELATIVE to the quantity supplied on the original supply curve. As the supply curve shifts left, we move upwards and to the left ON the demand curve until we reach a new market equilibrium at P1 and Q1. The market quantity is less than it was and the market price is higher than it was.
How much are prices going to rise? The graphic below gives you some idea of how spot prices in the steel market have been affected...Please note that the prices COULD be affected by other varibles in the market, but this article suggests that the decrease in production by the Chinese plays a significant role.
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