What’s ahead with steel pricing

By |  August 3, 2022
China recently cut back its steel production for environmental reasons. Photo: simonkr/E+/Getty Images

China recently cut back its steel production for environmental reasons. Photo: simonkr/E+/Getty Images

As a worldwide shift toward clean energy promises to accelerate demand for steel, the Russia-Ukraine war is putting pressure on supply.

Russia is the fifth-largest global source of steel. For equipment buyers, the question becomes: Will market disjunctions lead to price hikes similar to those experienced last fall, when a recovering economy and supply chain disruption spiked the price of hot-rolled steel to $1,916 a ton?

This becomes even more urgent given extended lead times steel buyers have experienced over the past year.

“Steel has had to cope with many of the same supply chain issues as other industries,” says Tim Gill, chief economist at American Iron & Steel Institute. “These have been caused by all of the back and forth of COVID lockdowns and reopenings, and now, by the Russia invasion.”

Russia produces much of the slab that goes into the plate steel destined for heavy machinery used in the aggregate industry.

“That part of the steel market has gotten kind of squeezed by the war,” says Dan Smith, an analyst at Fastmarkets, a commodity price-reporting agency.

Steady supply

For two reasons, Smith says much of the recent angst about steel supplies has subsided.

First, cuts to Russian exports have not been as deep as people thought they might be – at least so far. Second, people have shifted their concerns toward the larger threat of a possible recession.

“With higher interest rates and the prospect of slower economic growth, including the construction sector, I anticipate an easing of demand for steel,” says Larry Williams, executive director for the Steel Framing Industry Association.

The U.S., in particular, seems to be weathering the conflict well, since only 4 percent of its imported steel emanates from Russia.

“Certainly, the Russia invasion of Ukraine has created some issues with exports of raw materials,” Gill says. “However, domestic steel companies are very innovative and, after a period of time, they have been able to find workarounds for most problems. While it’s always hard to project what supply is going to look like, there’s nothing out there that would suggest availability issues.”

Upward pricing pressure has been mitigated by longstanding overcapacity resulting from the high number of steel-producing nations. The U.S., the world’s largest steel importer, sources its metal from nearly 80 countries, according to the U.S. Department of Commerce.

“About 25 percent of the steel used in the U.S. came from foreign sources in the first four months of the year,” Gill says. “That was a bit higher than in recent years and has actually been rising since the beginning of the pandemic.”

Thanks to these moderating forces, steel prices recently settled to around $1,000 per ton – still more than twice the price in summer 2020. Factors that continue to buoy prices include labor and shipping costs, as well as supply chain disruptions. Moody’s Analytics estimates prices should rise by the end of the year to around $1,300 per ton.

Looking ahead, will there be enough supply to sustain the level of importing to the U.S.?

China is the world’s largest steel producer, so its moves have outsized ramifications. For environmental reasons, China recently cut back its steel production, which is a major burner of coal.

“A lot depends on what happens in China, where lockdowns have had an impact on both the manufacturing and demand side,” Williams says. “If that country is able to get its economy back on track and its GDP (gross domestic product) remains in the strong 6 to 7 percent range, the market will become a lot more attractive for domestically produced steel. That means they’re less likely to be looking for export markets.”

Equipment buyers want to know if steel market disjunctions will lead to price hikes similar to those experienced last fall. Photo: P&Q Staff

Equipment buyers want to know if steel market disjunctions will lead to price hikes similar to those experienced last fall. Photo: P&Q Staff

Increasing demand

If steel production and sourcing are so flexible, it follows that price is driven less by supply and more by production costs.

“The steel makers are mainly concerned about margins,” Smith says. “Whenever the price of iron ore or scrap goes up, they need to push up their own steel prices, and vice versa.”

Demand, though, can exert its own upward pressures. Steel’s biggest user is the construction industry, which is maintaining a healthy appetite for the metal.

Williams attributes a decline in manufacturing activity earlier this year as representing a needed plateauing after a period of robust production. Through it all, he adds, steel mills have managed to maintain a capacity utilization percentage in the low 80s.


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