Will steel prices go down in 2021?
Steel prices are expected to recede from the third quarter of 2021 through the end of 2021. Asia and Europe will experience the relief sooner than the US. Prices of stainless steel, bar and rod, steel scrap, and steel sheet are expected to decline over the second half of the year.
What is the latest global steel market overview?
Steel market in Asia and Europe are likely to experience a relief in the third quarter of 2021, except for the United States (US) which is delayed until later in the year due to supply shortage, increase in scrap metal prices, and suppressed imports from Asia due to logistics issues.
Steel supply outside North America is improving and prices will turn downward in the third quarter, although the rate of decrease will vary by region. Mainland Chinese steel market demand has been slowed owing to the end of the spring construction season and the onset of the monsoons, muting steel market prices throughout Asia. On the other hand, strong demand owing to the beginning of construction season as well as tight supply has been driving steel prices up in Europe, although the southern European mills will stop this trend from becoming excessive. Steel is rising in North America, with (hopefully) the last round of price hikes for most products. Locking now will mean overpaying during the second half of the year. Either buy on spot or be sure your contract has an escalator clause because in coming months it would act as a de-escalator. Supply chain disruptions have delayed expected declines, but fundamentals of supply and demand still point toward a turning point in coming months.
Spot buying is a better purchasing strategy in reaction to the current steel market trend
- The onset of construction season and tight supply has been causing issues for northwest Europe, but low steel market prices in the south should be able to prevent a price hike.
- Buy on spot as much as possible. Supply is improving although certainly not in surplus. Steel prices forecast calls for a recede over the second half of the 2021 so locking means overpaying.
- Liberty Steel is an ongoing saga. Restructuring is currently in process and the company aims to focus on its European and Australian operations and a consolidated operation in the United Kingdom (UK). Liberty Steel is now in breach of an £18 million loan with Metro Bank. Arcelor Mittal is looking to acquire Liberty’s French mills, while Liberty has announced the sale of the specialty business in Stocksbridge, UK, which makes alloys for the aerospace industry. IHS Markit remains extremely worried that Liberty will fail and advise buyers to have alternate supply arranged if Liberty cannot deliver.
Bar and rod
Commodity Price Monthly, August 2021
Source: IHS Markit
© 2021 IHS Markit
A deeper dive into the steel prices forecast and analysis
Stainless steel prices rose to their highest level since 2014 in the second quarter as raw material costs spiked and sellers increased base prices and margins as supply tightened. While the forecast has been revised higher, our view is that most of the upward momentum is over and stainless prices will moderate over the third and fourth quarters as, especially in Europe, as demand growth begins to slow, domestic production picks up, and imports start to rise.
Preference for higher-grade and direct charge iron ore has been growing in recent years and is expected to persist as mainland Chinese mills continue to shut down small blast furnaces in favor of large-scale operations, which require more quality iron ore blends. Prices for iron ore are forecast to decline from current levels to average $200/metric ton in July 2021 before sliding through the third quarter to end of 2021 at around $155/metric ton.
Chart 1: Iron ore and scrap prices
Seaborne scrap prices appear to be anchored to iron ore prices and are therefore unlikely to be bid up in line with US finished steel prices. With steel prices starting to roll over outside of the US, the end is in sight for this bull move in scrap pricing. This said steel scrap will not crash back down to earth but instead drop in line with the iron ore price correction, i.e., about 22% by the year's end.
In mainland China, the prices of hot-rolled coil spiked in early May 2021, going from 5,800 yuan per metric ton to 7,000 yuan per metric ton in a matter of days. However, it dropped back just as quickly to near 5,200 yuan per metric ton. Prices bounced in mid-July when the mainland Chinese government lowered the reserve requirement for banks (to help stimulate credit growth), but downward moves should resume as supply remains ample. Demand is strong, so declines will be measured rather than a collapse.
Chart 2: Hot-rolled coil prices
European production continues to improve so supply will replenish, and prices will fall. Safeguard tariffs were extended for three years based upon faulty analysis, but the improper decision still stands even after the mistake was acknowledged. The extension caused us to impose a slower rate of decline for Europe, but not to remove the decline. Prices will fall regardless; it is a matter of timing and pace.
The Western Hemisphere remains expensive because of problems in the US. US production of sheet continues to lag, although it is finally rising. Supply balance will not be restored without imports. Luckily, import tonnage was good in April and appears to have been good again in May. A real surge appears imminent for August and September based upon import licenses already issued and reliable reports of current bookings for early autumn delivery. As imports arrive, prices fall.
Finally, the expectation of additional tonnage in North America is coming true. Ternium’s new mill in Mexico is deep into test tons and should be fully contributing to the current steel market by the third quarter. The mill has capacity of over 4 million metric tons per year. SDI Sinton is on pace for third-quarter test tons and fourth-quarter commercial production, with capacity of 3.2 million tons. Nucor Gallatin should be commercial by early 2022, adding another 1.4 million tons. More capacity is due for 2022. Tight sheet should move to surplus sheet by early 2022.
Bar, rod, and structural are a bit better from flat products. Prices are the highest since 2011, so “better” is a relative term. Prices are expected to decline over the second half of the year, but this is completely dependent on input costs for iron ore and scrap.
Demand in the Chinese steel market is fading, because of the onset of the monsoon season, and demand has lulled, partly because of seasonal factors and the 100-year anniversary celebration of the Chinese Communist Party (CCP). However, in the early fourth quarter, with the end of the monsoon season, we expect a slight uptick in prices, as construction season begins anew with demand increasing, fueled also by the announcement that the bank reserve requirements will be lowered by 0.5 percentage point, to bolster slowing economic growth.
Rebounded construction in Europe has led to increased prices, particularly in the Northwest where supply has been tight. However, the supply issue can be addressed through mills in southern Europe. Renewed EU safeguard measures prevent alternative supply options.
In the US, we see price increases because of supply-chain issues and increases in the prices of scrap. Most mills have low availability and are sold out one to two months ahead. Domestic sellers' favorable position has yet to deter buyers, and demand is firm. Longer lead times have made imports unattractive as customers are reluctant to lock in orders at such high prices.
Current steel price and market update in a nutshell
Strong global production will start to alleviate supply shortage and allow steel market prices to retreat over the second half of 2021. The exception is the US, where key steel capacity remains idle, scrap prices are increasing, and imports are suppressed by logistics problems.
For further information on how steel and non-ferrous metals are taking divergent tracks, listen to our Steel Experts John Anton and John Mothersole.