Prices are spiking to unsustainable peaks in 2021
Steel prices will spike in the first quarter but fall rapidly over the following months. All products are rising rapidly. Rapid construction and industrial recovery from COVID-19 lockdowns outpaced sluggish capacity restarts, so supply is temporarily tight. Mills have restarted in most regions, so shortages will not last and prices will retreat quickly over the second quarter.
Sheet prices are spiking in the United States at one of the fastest rates in history, despite ample (but idle) capacity. Despite the high prices, buyers should worry more about supply than price for the first quarter of 2021, but should avoid locking prices for the remainder of the year. Other products and regions have high prices for the first quarter of 2021 but are not experiencing shortages.
- The buying advice for steel is “wait.” Prices spiked in the fourth quarter of 2020 and are carrying over into January. Prices are above fundamentals and will fall back in the second and third quarters. The exception is sheet, which is on allocation in the United States. Ensuring availability is more of a concern than price. Furnace restarts will alleviate supply and then price by the second quarter. Lead times are long in Europe but there is no allocation so far.
- Downside risk is high if the second wave of COVID-19 grows worse. However, if manufacturing and construction are idled, then steel demand and prices will fall.
- Upside risk from Australian cyclones is worth watching. Ore mines are at full capacity, so any disruption would be magnified. If cyclones disrupt delivery, ore would spike and with it, steel prices.
Bottom line: Steel forecast for 2021
We continue to hold that steel prices will peak globally in the first quarter of 2021 and then retreat. Sheet is on allocation in the United States and tight in Europe, so work to ensure supply even if you have to pay too much in first quarter 2021.