Commodities

Steel prices may drop everywhere, except in the US

Subramani Ra Mancombu Chennai | Updated on November 26, 2021

Biden’s $1-trillion infrastructure stimulus likely to support the ferrous metal

US President Joe Biden’s approval of an infrastructure stimulus programme on November 15 will support steel prices in the US, though they are likely to drop further in other parts of the world to $750 a tonne for longs and flats.

Fitch Solutions Country Risk and Industry Research (FSCRIR), in a commentary, said the rally in steel prices has ended globally, barring in the US. Last month, the World Steel Association (worldsteel) said steel could seem more upside if the US President enacted the $1-trillion infrastructure bill, but the effect may not be felt until late-2022.

Price forecast up

Fitch Solutions, however, has raised its steel price forecast a tad this year, to $950 a tonne from $920 earlier. A longstanding mismatch between the supply and demand in the first half of the year pushed up steel prices higher than expected.

FSCRIR said it had rightly predicted that prices would cool in the second half, with European and Asian prices declining, though US steel prices have begun to stabilise since October.

Chinese steel output pulls down global production in Oct, again

The global average in 2021 has mainly been boosted by the US steel prices, which have been breaking historical records until the time of writing. Global steel prices have, thus far, averaged $959 a tonne since the beginning of the year, against the 2020 average of $582.

On Tuesday, the American steel index ended at 1555.19, up 20.35 per cent since the beginning of the year. Over the past three months, the index has declined 13.11 per cent. In China, steel prices are ruling at 4,337 yuan ($678.81) a tonne, the lowest since February last year and about 25 per cent lower than the record high of 5,975 yuan ($935.19) on May 21 this year.

Chinese output rebound

Fitch Solutions said Chinese steel production will rebound next year after slipping since July. According to worldsteel data released on Tuesday, China’s steel production dropped for the fourth consecutive month in October by 23.3 per cent, the sharpest fall yet this year.

Chinese steel production has been affected by the energy crisis that the Communist nation suffered due to high coal prices and the dry weather in some regions.

Fitch Solutions has forecast a 2.5 per cent growth in Chinese steel production this year and five per cent next year. As per worldsteel data, Chinese production during the January-October period fell by 0.7 per cent.

FSCRIR said the Xi Jinping administration’s intervention in the coal sector has eased the energy crisis in China and steel production is expected to rebound from the steep declines witnessed till October. On Tuesday, prices of iron ore, the steel-making raw material, increased by over five per cent on hopes that steel production in China will rebound. They increased by $5 on Wednesday to 96.59 (617 yuan) a tonne.

Production curbs

Referring to Beijing’s measures to curb steel production on environmental grounds, Fitch Solutions said the government had said it would pursue a less aggressive decarbonisation policy. Some of the Chinese measures in the first half of this year that were seen to be harsh will now be carried out at a gradual pace.

FSCRIR said modern, less-polluting steel capacity would come online and this would see steel production in China growing by five per cent next year. European and Asian steel prices have embarked on the weakening track, the rating agency said and added that more weakness, though mild, is expected for the remainder of the year and the early next year.

On the demand side, worldsteel does not see any growth next year, as the Chinese real estate sector remains depressed in the light of Beijing’s policy stance on rebalancing and environmental protection. “Some restocking activities might support apparent steel use. Recent government action to push for a transition away from the real estate-dependent growth model is likely to continue,” the association said.

Demand impact

Fitch Solutions said China’s steel demand growth from the construction industry peaked in the first half of this year, though ongoing projects and new public infrastructure projects will continue to buoy demand for the ferrous metal over the next four years.

“We do not expect the strong demand impact, that had stemmed from an acceleration of government stimulus since April 2020 to support the country’s post-Covid recovery, to return in 2022 onwards,” it said.

Aluminium futures: Go long above ₹217

While steel production remains disrupted in Europe as plants are upgrading or facing financial problems, transport bottlenecks continue due to Covid curbs. But ample stocks with distributors could delay purchases, leading to lacklustre growth over the next few months, it said.

Supply will likely be restored soon and imports will also aid in helping steel prices stabilise next year in the US, but any collapse of the price is unlikely due to strong demand, Fitch Solutions said.

The rating agency said it expects a revival of European steel demand following the collapse seen in 2020 due to the Covid pandemic. The World Steel Association views are similar, as it sees a recovery gathering momentum in the EU despite a rise in Covid infection.

Published on November 24, 2021

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

  1. Comments will be moderated by The Hindu Business Line editorial team.
  2. Comments that are abusive, personal, incendiary or irrelevant cannot be published.
  3. Please write complete sentences. Do not type comments in all capital letters, or in all lower case letters, or using abbreviated text. (example: u cannot substitute for you, d is not 'the', n is not 'and').
  4. We may remove hyperlinks within comments.
  5. Please use a genuine email ID and provide your name, to avoid rejection.