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By Yoke Wong and Nicole Willing
Edited by Valerie Medleva
Updated
Extended downward trends have battered the price of US steel since May. Prices have remained lower than expected, with many forecasters revising their predictions downwards.
The global market has weakened since late March as spiralling inflation, Covid-19 lockdowns in parts of China and the conflict between Russia and Ukraine have all heightened demand outlook uncertainty in 2022 and 2023.
The US Midwest Domestic Hot-Rolled Coil (HRC) Steel (CRU) continuous futures contract was down 47.8% since the start of the year, having last closed at $705 on 16 October. HRC prices hit multi-month highs in mid-March, as supply concerns over steel output and exports in Russia and Ukraine supported the market.
However, market sentiment has soured since a strict lockdown was imposed in Shanghai in early April, causing prices to plunge in the subsequent months. The Chinese financial centre officially ended its two-month lockdown on 1 June and lifted further restrictions on 29 June. However, the latest sweeping waves of lockdowns have seen as much as 20% of China’s population under some form of coronavirus-related restrictions.
The future remains uncertain, and the US Federal Reserve and other major central banks have been hiking interest rates at an aggressive pace to calm inflation. Last month, the US central bank raised its benchmark rates by 0.75%, bringing the Federal Funds rate to over 3%.
Such high interest rates are widely expected to cause problems in the future, as they are likely to reduce demand from key steel consumers such as the automotive and construction industry. China, the world’s largest steel consumer, is also facing a real estate market downturn, resulting in reduced demand for the commodity.
Are you interested in learning more about steel commodity prices and their outlook? In this article, we’ll look at recent news affecting the market, along with analysts’ latest steel price predictions.
In 2021, the US HRC steel price trend was up for most of the year. It hit a record high of $1,725 on 3 September 2021 before falling in the fourth quarter.
US HRC steel prices have been volatile since the start of 2022. According to CME steel price data, the August 2022 contract started the year at $1,040 per short ton, and fell to a low of $894 on 27 January, before rebounding above $1,010 on 25 February 2022 – a day after Russia invaded Ukraine.
The price rallied to $1,635 per short ton on 10 March on concerns about disruptions to steel supply. But the market turned bearish in response to lockdowns in China, which have dampened demand from the world’s largest steel consumer.
In its Short Range Outlook (SRO) for 2022 and 2023, the World Steel Association (WSA), a leading industry body, said:
In a piece on the EU construction sector in early September, ING analyst Maurice van Sante highlighted that expectations of lower demand globally – not just in China – were putting downward pressure on the price of the metal:
China is the world’s largest steel producer and consumer, accounting for more than half of global output and finished steel demand. According to the WSA, China produced 1,032.8 billion tonnes of crude steel in 2021 – equivalent to 52.9% of global output. The country consumed 666.5 million tonnes of finished steel products, equivalent to 51.9% of global apparent steel use in 2020.
As part of China’s zero-Covid policy, the country imposed strict lockdown measures in Shanghai in early April. Shanghai is China’s key financial hub and one of the nation’s major ports. The restrictions severely disrupted the country’s import and export operations, hitting Chinese economic growth in the second quarter.
Record-breaking heatwaves in China have also led to power rationing in factories – including blast furnaces – and have led to a sharp decline in steel output. The NBS manufacturing PMI contracted for a second consecutive month in August, along with the broader Caixin PMI, which also unexpectedly declined to 49.5 in August 2022 from 50.4 in July.
On top of that, new Covid outbreaks in Chengdu, Guangzhou and Shenzhen in early September have led Chinese authorities to extend lockdowns for millions, further adding to concerns of lower economic activity.
“Whether the demand is there really depends on the steps that China takes to try to hit its growth target of 5.5% for 2022,” Warren Patterson, head of commodities strategy at Dutch bank ING, noted on 29 June.
China’s steel output was lower before the lockdowns, as the government ordered production cuts at the start of the year, during the Winter Olympics.
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In late August, analytics firm MEPS International underlined that other Asian nations could support steel output in the interim:
Steel production outside China has largely struggled this year because of the Russia-Ukraine war. Fresh WSA data shows that steel output from Russia, other CIS countries and Ukraine fell by 29.1% in July 2022 compared to the same month a year earlier to 6.4 million tonnes, and decreased 18.8% in January-July 2022 to 50.5 million tonnes.
Output from the EU was down 6.7% in July year-on-year and 5.6% throughout January to June 2022, with production in other European countries down 16.5% compared to July 2021 and 6.7% throughout the first six months of the year, affected by higher energy prices and weaker downstream demand, particularly from the auto industry.
Steel market analysis firm MEPS International noted the decline in global crude steel production, which fell to 149.3 million tonnes in July – 6.5% lower than in the same month in 2021 – was the largest such fall in over a decade.
With Shanghai – one of China’s largest cities and its biggest consumer market – having lifted its lockdown on 1 June, steel demand may be set to recover in the coming months as the economy restarts.
However, with Covid-19 outbreaks and lockdowns persisting across several regions in China, many analysts have downgraded their expectations for Chinese steel demand and the price outlook during the lockdown periods, although most expected demand and prices to recover once restrictions were lifted.
The price of raw materials (iron ore and coal) is expected to remain high in 2022 because of geopolitical tensions and state-mandated measures to reduce carbon emissions. Fitch Ratings expected steel prices to remain fairly high this year.
The WSA forecast steel demand in China to remain flat in 2022 and potentially increase in 2023 as the Chinese government tries to boost infrastructure investment and stabilise the real estate market.
Global steel consumption was expected to increase to 1.84 billion tonnes in 2022, up 0.4% from 2021. In 2023, steel demand was forecast to grow 2.2% to 1.88 billion tonnes. However, the WSA warned that projections are subject to high uncertainty.
The industry body also expected the war in Ukraine to end in 2022, but sanctions on Russia to largely remain. Sanctions imposed on Russia have reduced the availability of steel in Europe. According to WSA data, Russia produced 75.6 million tonnes of crude steel in 2021, accounting for 3.9% of global supply.
Let’s check what the steel price forecast could potentially look like, according to market analysts.
According to a recent forecast by information provider IHS Markit, hot-rolled coil prices in Europe and the United States could potentially stay around the $800/metric ton level throughout Q4 2022 and extend into 2023:
ING’s Warren Patterson noted that considerable steel inventories in China could limit the upside in the near term.
“Most steel producers worldwide will go into the traditional summer period – a seasonally slow time of year – with a sense of trepidation that the bottom of the current price cycle has yet to be reached,” according to commentary by steel market analysis firm MEPS International on 24 June.
Algorithm-based forecaster WalletInvestor was bullish in its long-term forecast for the US HRC price as of 17 October 2022. The site predicted that the price could rise to $832.66 by the end of 2022 and continue to climb in the coming years. WalletInvestor’s steel price forecast for 2025 saw the price rising to $1,541.22 by year-end.
Due to the heightened uncertainty and volatility in the market, analysts have tended to refrain from giving a long-term steel price forecast for 2030.
Note that predictions can be wrong, and that analysts’ steel price forecasts shouldn’t be used as a substitute for your own research. Always conduct your own due diligence before investing, and never invest or trade money you cannot afford to lose. Keep in mind that past performance is no guarantee of future returns.
Whether steel is a good investment for you depends on your investing goals and portfolio composition. You should do your own research, and never invest any money that you cannot afford to lose.
With uncertainty caused by the Russian invasion of Ukraine and related market volatility, it is unclear whether steel prices will go up or down in the remaining months of 2022.
Whether you choose to invest in steel is a personal decision that you should make based on research into how the market is performing and the outlook for your preferred investing time horizon.
Always conduct your own due diligence before investing, and never invest or trade money you cannot afford to lose. Keep in mind that past performance is no guarantee of future returns.
Supply and demand affect the price of steel. The prices of steel-making raw materials – iron ore and coking coal – are also key drivers of steel prices.
As steelmaking is an energy-intensive process, the price of oil and gas will affect steel prices as well.
The steel price has been falling because of a weak demand outlook, brought about by the extended lockdowns in China. Covid-related restrictions caused usage of the commodity in the world’s largest steel-consuming country to fall.
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