Heat may stay on in steel market
The demand globally for finished steel and the metallics used to make it seems strong going forward, an Argus analyst says.
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Heat may stay on in steel market

Argus analyst says while the upward trajectory of prices could be over, they could remain lofty.

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March 19, 2021

Steel pricing has surged upward in the past 10 months as first China and then the rest of the world began rebounding from the initial impacts of the spread of the COVID-19 virus.

A metals analyst with media and pricing service organization Argus, speaking at that company’s March 18 Ferrous Focus Day virtual event, said the peak could have been reached, but conditions are in place for the value of steel to stay lofty rather than plummeting anytime soon.

Tim Hard, a Singapore-based vice president of metals with Argus, referred to the impact of COVID-19 on national economies and steel sectors as a “FIFO [first in, first out] slump,” with China suffering from the virus first while also emerging from the pandemic before other nations.

He noted that while it was comparatively easier for electric arc furnace (EAF) mill operators to scale back output during the slump, many blast furnace/basic oxygen furnace (BOF) steel mills kept churning out steel and offering it to the global market.

By the summer of 2020, demand and pricing were on an upward trend for steel, iron ore and globally traded scrap grades, such as No. 1 heavy melting steel (HMS).

Looking forward, Hard said global steel output leader China “will continue to have a huge effect on the market.” The health of its domestic market as well as the percentage figure it puts on steel export rebates “will have an outsize effect on the global and regulatory [tariff] market,” he remarked.

Hard said he is reluctant to give narrow forecasts but commented that globally steel prices “are likely [as a trend, with dips] to reset at a slightly higher level than we have seen in the past.” He cited as factors pollution controls “and the pull toward higher quality raw materials” in China.

March 17, hot-rolled coil (HRC) steel was trading at $730 in some parts of the world. Using London Metal Exchange (LME) forward pricing activity as a guide, Hard said the “forward curve is fairly flat” for HRC, with the price based on this model dropping to $710 in May, $700 in June and $661 in December.

“That’s fairly shallow” as downward patterns go, said Hard, with the same LME forward pricing trend models still having HRC at $652 in April 2022. “We’ve been covering HRC since 2015, and it’s only in 2021 that the price has [settled consistently] above $650,” he added.

Calling the current steel landscape a bull market based on the past seven years’ worth of data, Hard pointed to bottlenecks in raw material supplies as “a tight market that could get tighter.”

Hard concluded that the high pricing and volatile conditions have “left deep scars” on buyers and sellers of steel and the raw materials to make it. He predicted “market conduct might change going forward” in the form of an increased willingness for traders to engage in hedging and indexed buying.

The “rewards are low to keep playing the market,” Hard remarked, adding that “for steel buyers, uncertainly is [now] more often an inconvenience rather than an advantage.” Pointing to what is routine in the nonferrous sector, he added, “It’s unusual for a metals sector to have 100 percent exposure” to price changes.

Fellow Argus Ferrous Focus Day presenter Prabodha Acharya, chief sustainability officer of India-based JSW Steel, said a path toward less emissions-intensive steelmaking in India will involve several techniques and technologies, ultimately including carbon capture.

Acharya said an abundance of scrap-fed EAF steelmaking may not be in India’s immediate future, even though the nation aspires to nearly triple its steel output to 300 million tons per year by 2030.

“The limiting factor here is the availability of scrap,” said Acharya. He said JSW and other steelmakers are likely to “jointly work toward increasing the use of” the EAF process. For its part, JSW has EAF capacity in Texas and Ohio in the United States.

While India lacks sufficient “quantity and quality of scrap,” Acharya said, the nation also seems destined to rely heavily on imports if it uses BOF technology to reach 300 million tons per year of capacity. According to Argus, India imported more than 48 million tons of coking coal in 2019 to produce the 111 million tons of steel it made that year.