Why is Steel Price Increasing

Steel prices have continued to increase (as at December 2020) following a downward period during the peak of the lockdown. This is a global trend which is not looking to slow down or reverse any time soon. We discuss in more detail why this is occurring in this article.

Of all finished steel products across the globe, Hot Rolled Coil is predominant and is the foundation for many steel-based industrial goods. As China is the world’s largest producer, exporter and consumer of steel, it exerts a strong influence over global pricing.

China produces more than half of the world’s steel and typically exports more each year than some countries produce. This makes Chinese steel prices the key indicator for regional markets and further. However, towards the middle of 2020 China imported their highest levels of finished steel since 2009, largely due to substantial fiscal spending and monetary easing. Also, during this same period, China have been exporting far less – dropping to the lowest levels since 2013, preferencing local sales instead – with China’s domestic market maintaining strong demand from its infrastructure and property sectors, this resulting in little room for steel exports from China to rebound.

As can be seen from the chart, the price of Steel HRC FOB China has increased substantially since the middle of the year, with this trend likely to continue during Q1 and Q2 of 2021.

 

Steel HRC FOB China Futures Dec
Source: investing.com

This is not exclusive to HRC as cold-rolled coil, plate, wire rod and rebar prices also continue to rise.

European prices have risen in line with Chinese prices with coil prices continuing to rise substantially in November; the MEPS Europe Average Hot Rolled Coil transaction value has climbed by more than 25% since June 2020.

European steel distributors are largely confident they will be able to pass this price increase down the supply chain at the moment and for the foreseeable; due to lockdown and other reasons, stock levels remain low with end users accepting they will need to pay more to replenish. Mills are targeting ambitious selling figures and steelmakers are also keen to secure increased spot values during the current negotiation period.

MEPS have put forward six reasons why European steel prices will continue to increase for the short term:

  • Unsustainable margins as European mills cannot withstand such weak financial positions. Mills need to lift spot market prices before 2021 negotiations begin.
  • Rising costs as raw materials for steelmaking have increased drastically since late March. Iron ore prices have reached a six-and-a-half-year peak (as can be seen in the chart from Trading Economics).
  • Uncompetitive imports, largely due to China importing a much larger amount of raw materials and finished steel than in previous years. China’s stimulus fuelled recovery from the virus pandemic has enabled steel exporters such as Russia and China to increase HRC values by over $100 per tonne since the March/April crash.
  • Trade protection MEPS report as being another factor which will likely influence the near-term steel price, as the European Commission have implemented revised safeguard quotas aimed at preventing economic damage for European steel producers. This will ultimately result in reduced import into the EU from major suppliers such as Turkey, India and Russia.
  • Tightening domestic supply due to a substantial amount of capacity having been taken out of the market; crude steel production in Europe fell more than 25% in Q2 when comparing to the previous year.
  • Recovering demand as steel consumption increases going into 2021.

 

This all said then, it is unlikely steel prices will reduce during Q1 and potentially Q2, too – with this impacting the entire supply chain.

Iron Ore as at Dec 2020
Source: tradingeconomics.com

ADS Laser is the premier metal laser cutting, folding, fabrication and metal finisher.

Providing bespoke to volume solutions.

For any enquiries, visit our Contact Us page and get in touch.

Address

ADS LASER CUTTING LTD
THE MONARCH BUILDINGS
RADNOR ROAD
WIGSTON
LEICESTERSHIRE
LE18 4XY

REGISTERED COMPANY NUMBER: 5355057
ALL RIGHTS RESERVED ©

ADS Laser

Method of Meet

Fill out the form below and we will get back to you as soon as possible.