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Steel Price Forecast and Market Outlook

Coronavirus outbreak to weigh on global steel markets

An outbreak of a new coronavirus (2019-nCoV) in Wuhan, the capital of Hubei province in mainland China, and subsequent extension of factory closures beyond the Lunar New Year holiday have caused a downward revision to our iron ore and steel price forecasts over the first half of 2020. Mainland China produces more than half of the world’s steel and consumes more than 64% of global seaborne iron ore every year, making the steel market particularly vulnerable to changes in Chinese demand and production.

Hubei province, at the heart of the coronavirus outbreak, only accounts for around 2.5% of total Chinese finished steel production capacity. Hubei does, however, consume a significant volume of steel with its manufacturing and automotive industries. On net, we expect the cut to production to be less than the cut to demand. Thus, steel supply in mainland China will rise on balance, putting downward pressure on prices.


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Impact on iron ore

The challenge steel mills will face is how to move iron ore from ports to the mills, given the disruption to transport and rail stemming from restrictions. This shortage of material inside mainland China will therefore boost port-side prices as mills scramble for ore. Furthermore, vessels will now begin to queue up at Chinese ports due to the lack of personnel in port handling services and the quarantine currently being applied to all inbound freighters while operatives provide a clean bill of health for the crew. We expect seaborne prices to temporarily ease as vendors look to divert vessels to other markets, e.g., North Asia and Europe. If Chinese mills are unable to get access to new iron ore feed, they will likely ramp down production, move to hot idling, or bring forward maintenance schedules, ceasing steel production all together.

Given that the worst-affected regions in mainland China  -- the provinces surrounding Hubei -- only constitute 11% of Chinese steel capacity, we estimate that total national steel production lost in first quarter 2020 will be around 12%, or (based on steel production growth of 3.5% in fiscal year 2020) around 31 million metric tons of crude steel.

Translated roughly into iron ore demand, this means a reduction in iron ore demand of 52 million metric tons, equivalent to around 55% of Chinese monthly iron ore imports. We estimate benchmark iron ore prices to fall $17 from pre-coronavirus levels to around $95/metric ton. We estimate that premiums for high-grade ore will expand and that discounts for low-grade ore will contract as mills rush to buy any ore available.

Impact on steel prices

The extended factory closures beyond the holiday week due to the coronavirus outbreak will reduce both demand for steel and production of steel. 

Our forecast assumes that disruption to steel production due to factory closures and other logistical issues will last into March, and will be followed by a period of excess inventory hanging over the market through most of the second quarter. As a result, we anticipate more downside to prices in the coming months, with steel prices falling by $70–80/metric ton from their January peak through April/May, before rebounding over the second half of 2020 as demand rebounds once the coronavirus is contained.

Outside of mainland China, we also anticipate a pullback in global steel prices over the near term, primarily driven by falling scrap prices. Scrap prices increased by $70–80/metric ton across most global markets in the fourth quarter, after falling throughout most of 2019. Scrap prices increased too much, too fast and were exposed to a pullback. Lower scrap prices were expected to weigh on steel prices in the United States, Europe, and other major markets outside of mainland China in the coming weeks and months even before the coronavirus outbreak. The looming disruption to global demand and supply chains from the coronavirus outbreak, combined with lower Chinese steel prices, has also resulted in a downward revision to the second-quarter outlook for steel prices in the United States and Europe.


Mark Ulmer

The group specializes in monitoring global commodity, wage, output and other related indicators by sector. Their focus spans across ferrous and nonferrous metals, machinery and equipment, electronic components, chemicals, paper, packaging materials, health care and more. He has authored two articles that appeared in the Monthly Labor Review. ​Mr. Ulmer received his Bachelor of Science degree from State University of New York,  Albany, N.Y., U.S. He is a member of the Bureau of Labor Statistics Business Research Advisory Committee (BRAC)​.​

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Laura Hodges

Ms. Hodges is responsible for the management and operations of the Pricing and Purchasing Research team. Ms. Hodges has managed several projects on global cost analysis, including projects in Asia and South America, where the objective was to recommend the most cost-effective and efficient action in the procurement of key materials and services. She has spoken extensively on the topic of procurement pricing strategies and the global cost environment, including a presentation at the Institute of Supply Management titled, "Has China Lost Its Low-Cost Edge?" She has made presentations on the "Economic Risks to Consider Before Bidding Your Next Contract," and "Understanding and Estimating the Skilled Labor Shortage," at a conference of the Association for the Advancement of Cost Engineering. Ms. Laura Hodges holds a Bachelor of Arts in Economics from the George Washington University, U.S., and a Master of Arts in Health and Labor Economics from Duke University, U.S. She also earned an MBA from Rutgers University, Beijing, China.

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John Anton

Mr. Anton has expertise in the ferrous metals industry, he is responsible for evaluating the outlook for steel. He also specializes in forecasting commodities and works closely with the Automotive, Construction, Energy and Economics teams at IHS Markit. Steel demand is linked to outlooks from these key sectors. In turn, the profitability of these sectors can rise or fall depending on the price and availability of steel.Prior to joining IHS Markit, now IHS Markit, in 1995, he was in the private practice of law as well as an economist and statistician for the United States Department of Labor in the Bureau of Labor Statistics (BLS). Mr. John Anton received a Bachelor of Science in Economics from Florida State University, US, and a Juris Doctor from the Marshall-Wythe School of Law at the College of William and Mary, US.

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Amanda Eglinton

Ms. Eglinton has been a part of the Pricing and Purchasing metals team since 2015. She is the lead analyst covering steel pipe, stainless steel, nickel and the ferroalloys markets. She is responsible for tracking market conditions in the carbon and stainless steel markets and producing quarterly price forecasts and supply and demand outlooks. In addition, Ms. Eglinton participates in IHS Markit consulting projects for oil and gas clients as a steel subject matter expert. She holds a masters of arts in applied economics from the University of Houston, and a bachelor of science in finance and economics from Saint Louis University.

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