Turbulence in the global steel market and high steel prices look set to continue through 2022, with new challenges having arisen.
Prices for all steel products rose throughout much of 2021, with some, like steel rebar, spiking sharply in Q2 and Q3 before dropping off in Q4. Hot-rolled steel also reached a record high in Q3 before dropping off from peak levels in January.
It had been hoped that as global steel supplies gradually improved towards the end of 2021, that this would slow down the price increases. However, prices are expected to remain volatile this year due to several global issues and events causing limited supply, rising costs and spikes in demand.
As the Winter Olympics take place through February, host nation China has asked factories and refineries close to the Olympic stadiums to temporarily reduce, or even halt, production. These efforts to reduce emissions and improve air quality could impact up to 20 million tonnes of alumina capacity, according to Fastmarkets’ Metal Bulletin.
Additionally, European imports from Turkey are expected to increase – for cold-rolled coil and HDG – putting some extra pressure on markets.
Already high prices for iron ore and nickel could be further compounded following the spike in coronavirus cases in Australia – the leading exporter of iron ore. Australia and Brazil had already delivered lower mining output in 2021. The likely impact on mining and logistics operations, could now further limit supplies and impact prices.
Steelmakers globally are facing “unprecedented levels” of cost inflation for energy, raw materials and transport, UK Steel has said. These are expected to remain high for the foreseeable.
Prices are already set to remain high in Europe, due to rising energy prices impacting production costs. Some steelmakers have already slowed their production in recent months to cope with increasing electricity costs.
It is these high production costs that have pushed structural steel prices up by another £50p/t, according to British Steel. It said rising energy costs and inflation are a cause for concern, necessitating further price hikes. Prices grew by a further £340p/t through 2021. And though structural steel prices stabilised in Q4, it remained 66% more expensive than a year earlier.
Steel Market Update reported that some apparent slowing in demand will come as sectors work through high inventories from bulk orders of steel – purchased when markets were tight or late to arrive due to delays in logistics – and hold out to see if prices drop.
Similarly, ArcelorMittal – the second largest steelmaker globally – forecasts demand for steel to increase by just 0-1% this year – a drop compared to 4% last year when European and US markets were working to recover from 2020’s challenges.
A number of key industries are contributing to this, not least the automotive industry, which is yet to fully recover around worldwide. The manufacturing industry is expected to see good, but not great, demand this year, according to Steel Market Update data.
However, it is anticipated demand will increase significantly in China from Q2 onwards, as its authorities deliver stimulus packages to boost the economy.
Supply chain challenges through 2021 are likely to have an ongoing impact this year too. Delays and volatile prices for global shipping are expected to continue until at least Q3.
Despite the range of influencing factors it is important to view these challenges, and their impact on steel prices, in context. Other key materials, including concrete and timber, have also experienced price rises in line with steel in recent years.
And it has been commonly accepted across constructional steel prices that these have been too low for many years preceding 2020/21, so there is little expectation that prices will drop back to pre-pandemic levels.
There are some positive signs as a result of this ongoing volatility too. With more businesses paying closer attention to market trends and price predictions, early engagement with contractors and suppliers is becoming more commonplace, according to the British Constructional Steelwork Association (BCSA). Procurement has become more strategic, it says, allowing pricing to be more accurate. This allows manufacturers to better plan production activities.
Managing and mitigating risk in all aspects of programme planning and pricing is more important than ever. Working closely with suppliers and contractors, sharing information and understanding the global factors impacting all industries will help in navigating ongoing price challenges.