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Nieuws - 23 April, 2021

Steel prices may continue to rise


Steel prices have risen explosively over the past three-quarters of a year and have now more than doubled compared to mid-2020. These are the daily prices for hot-rolled steel coils. Because steel prices are cyclical and various factors can influence their development, it is not so easy to explain the enormous price increase. Some of the main causes are listed below.

PROBLEMS IN THE AUTOMOTIVE INDUSTRY

At the end of 2019, the steel market was already nervous, partly due to low import prices and import-restricting levies within the EU. The automotive sector, an important steel processor, was experiencing major problems and steel prices were under considerable pressure. The balance between supply and demand was somewhat restored when some steel plants temporarily closed production sites. In February 2020, the Covid-19 crisis came on top of this, with enormous consequences for the European economy. Automobile manufacturers were forced to shut down their production because parts were not being supplied and they were faced with staff absenteeism.

INCREASING DEMAND FOR STEEL

Steel producers faced cancellation and postponement of current orders in addition to staff absenteeism. As a result, even more production units, such as blast furnaces and rolling lines, were shut down. When the price increase suddenly stagnated, many buyers speculated that steel prices would fall again. That is why they were rather reluctant to place new orders. However, prices remained stable. Due to the temporary production stop of the steel plants, supply and demand were again reasonably in balance. The recovery in China came faster than expected, leading to an increase in the demand for steel and therefore also for raw materials such as scrap, oil and iron ore, which became much more expensive.

LONG DELIVERY TIMES

The scarcity of materials in the steel market appears to be continuing for the time being. The material demand within the EU is high, mainly because the transport sector uses much more steel than anticipated. Steel mills are currently delivering their materials much later than planned. Delivery times are already on September and in part even in the fourth quarter. In the coming months they will also deliver lower quantities than usual. Many large steel processors and service centres therefore want the European Commission to abolish the import tax, which now ensures that import volumes remain limited. At the moment, however, import prices are comparable to the prices of the European internal market and long delivery times also apply here. Nevertheless, the EU remains partly dependent on imports, because the European production capacity does not seem to be sufficient to meet the steel demand within the EU.

STEEL PRICES REMAIN HIGH

In summary: Due to the high steel prices elsewhere in the world and the expected growth, European steel manufacturers maintain a strong position on the European steel market. In the US and China, economic developments seem more positive than in Europe, partly because the governments there are investing enormous amounts of money to stimulate the economy. Economic growth is projected to be 6% or more in both countries. The demand for steel is therefore expected to remain good. It seems plausible that raw material and steel prices will remain high for the time being, or may even get higher.