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Three reasons why Steel Prices are so High
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It’s safe to say, that after living through 2020 we can no longer be surprised. And between a global pandemic and economic recession, 2020 was a year to forget for many. Although the construction and manufacturing industries were impacted by initial slowdowns due to restrictions, many businesses ramped up as lockdowns began to lift.
2021 is set to look like another eventful year for SMEs within Construction and Manufacturing if forecasts for steel prices are anything to go by. And while the future is yet uncertain, not only for businesses in the UK, but worldwide, there’s some steel price changes you can expect as we move further into 2021.
Steel prices increased further in the first quarter of 2021 which has been impacted from smaller levels of supply and additional new lockdowns around China’s top steel-producing region (China is the world’s largest steel producer).
With supply remaining tight and demand expected to rebound from pandemic levels, we can expect this to continue into the second quarter of 2021. The future trend in prices is very much in the hands of the demand-supply balance in China, and there may be some good news on the horizon.
Mint reported in February that steel prices are expected to fall as much as 10% from their January highs over the next few months. This is due to the softening of input costs, Iron ore and increased competition from cheaper imports with India.
There was more good news for manufacturers and construction companies impacted by the surge in material prices. In mid-February, HR coil prices fell by 3%, although they remained 40% higher than a year ago. And flat steel prices have also begun to fall due to rising inventories with traders reluctant to procure steel at the current market price.
Steel prices will remain high throughout quarter 2 of 2021 however, and we identify three reasons why.
There has been a clear demand for materials like Stainless Steel, with much of this demand stemming amongst Asian countries. But this is a trend now spreading across the world.
Despite a growing surge of demand and rising prices especially within China, Steel Mills are not benefitting from increased profits. This is largely due to surging Iron ore prices amid a post-virus economic recovery. Analysts in China are now calling for China to strive for a greater say in iron ore prices.
Freight shortages, caused in part by Brexit and the COVID-19 pandemic, has also contributed to increased costs due to increasing demand. The cost of moving both raw materials and finished products has risen dramatically, and the extra cost has been added onto the basic price of materials as a result.
Growing demand has seen a rise in companies stocking up due to the lower availability of steel which has further reduced availability and naturally caused prices to increase. This was not helped by the fact that in 2020, the economic slowdown paused construction projects, steel production and steel consumption alike. As a result, steel producers cut worldwide supply to reflect these, then, new conditions.
2021, however, is being earmarked as a period where the global economy is expected to go through recovery. The construction industry especially, is positioned to be one of the most powerful sectors beyond general economic recovery according to industry leaders.
The first glimpses of an economic rebound and recovering demand was reported by Steel Market Update (SMU). They showcased how global steel mills have been filling up orders since mid-November.
SMU also revealed in a poll that as much as 86% of steel buyers expected further steel prices increases from mills as demand grows. It’s likely that, based on these figures, we could expected further price hikes throughout the year.
If you’re looking to secure a lower rate for your steel projects, it is best to prepare for rising costs and secure your orders sooner, rather than later.
Steel production has been heavily impacted by the economic events within China, with events largely associated with the global pandemic. Recent spikes in COVID-19 cases around the Hebei province, where 20% of steel production takes place, has resulted in lockdown and subsequent issues for steel prices.
The measure is precautionary to combat the spread of COVID-19. Manufacturing however saw a decrease in demand, and the ripple effect has impacted local markets. As of now, the primary effect of the lockdown has driven steel ore prices up which could drive costs up for finished goods.
One of the key drivers of price increases, particularly within Stainless steel, is the rising trade value of Nickel. Although a comparatively small material in the production of Stainless Steel, making up between 8-10% of stainless steel, the value of Nickel had risen as much as £13,000 per tonne.
The commodity boom of Nickel, driven further by an ever-increasing demand for nickel used in the production of electric vehicle batteries, is having a significant impact on stainless steel prices.
A report from Roskill, prepared on behalf of the European Commission, highlights the demand for Nickel from the electric vehicle sector. It is expected to be 2.6 million tonnes by 2040 from the 92,000 tonne figure in 2020.
The report concluded “automotive electrification is expected to represent the single-largest growth sector for nickel demand over the next twenty years” – Roskill.
As Benjamin Franklin is quoted as saying, “By failing to prepare, you are preparing to fail” and this is certainly being echoed within industry.
Rising steel prices will increase upfront costs you will have to put up in order to complete a project. The biggest risk therefore are cash flow issues which you should be prepared for in your steel related projects.
As recommended before, if you are looking to secure a lower rate for your steel projects, it is best to prepare for rising costs and order sooner, rather than later.
As a leading expert in the field of Metal Spinning, and the leading organization in the UK Metal Spinning Industry, Excell’s services have been widely sought after worldwide. With the vast skills and knowledge required, we can ensure quality products are delivered on time and to your requirements!
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