July Steel Director's Briefing
I’m pleased to report that June was a positive month at Cooper and Jackson, and July has started better than expected. Demand has remained strong across all sectors, with automotive even seeing an uplift in activity of late.
However, I’m aware that this is not necessarily true when we look at things from a broader industry-wide perspective. For example, overall automotive demand has still not seen the uplift that was initially expected just a few months ago.
Automotive commentators felt that underlying demand was strong but was being stifled because of well-publicised supply chain difficulties - not least the availability of semiconductors. As problems eased, it was felt that real demand would emerge in the form of buoyant market activity. Thus far, this has not proven to be the case and the anticipated uplift has not materialised. Availability of semiconductors remains an issue in this and other sectors. The backlog of orders for Automotive remains high, but, because of other financial factors, it is difficult to see a significant increase in this backlog.
In response to reduced buyer demand, European mills have been proactive in seeking orders and have lowered their price expectations recently. This, combined with buyer uncertainty, has seen prices erode to the levels that were seen before the Russian invasion of Ukraine.
Can they fall further? Summer shutdowns are now upon us, meaning buyer activity will be reduced, and there are valid concerns about the outlook for the UK economy. Increased energy costs, labour shortages and inflation all continue to cast a long shadow.
However, in the UK, It remains true that the competitiveness of import tonnes is limited by the reduced value of the pound against the dollar. Concerns about inflation and the cost of living crisis are being compounded by the ongoing political uncertainty that has enveloped Westminster leading to a weak pound. Of course, the flip side to this is that it is much more expensive to import.
Moreover, In June, the Government announced that tariffs on steel imports into the UK are to be extended for another two years. There are concerns that this might breach WTO rules and it’s possible that a change in UK Prime Minister might lead to a change in policy. However, as things stand, the extension of the tariffs looks set to continue.
With China now emerging from its recent Covid restrictions, tariffs and quotas have an important role to play. However, it’s not yet clear how quickly production will increase and what appetite there is in China for exports.
The Indian Government announced a 15% tax on all steel exports last month. This has meant that most Indian Mills are not offering forward material currently.
European mills are currently looking to limit capacity. Arcerlor Mittal, for example, has taken out a blast furnace, whilst SSAB and Saltzgitter have delayed bringing back blast furnaces from maintenance periods. But, the expectation is that this will be quickly reversed once the European Summer Holidays are over, with mills fast approaching loss making positions, and overall demand levels expected to increase.
On the demand side, we can expect an uplift after the summer shutdown period and expectations within the automotive industry are that demand will improve as we progress through the second half of 2022.
Given these market conditions it seems most likely prices are now close to ‘the bottom’. However, political uncertainty in the UK and the ongoing conflict in Ukraine mean that we can take nothing for granted. As we’ve seen, things can, and probably will change extremely quickly.