What's the future for steel prices as we approach the end of Q2? May 2022 Steel Director's Briefing
At Cooper and Jackson, April began positively with strong demand, before activity levels began to drop as the Easter holidays approached. This was anticipated and activity resumed in a positive manner at the beginning of May. Things were expected to quieten again as people in the UK turned their attention towards the extended Jubilee Bank Holiday, with many deciding to take off additional time, but our volumes remained stronger than expected throughout May.
More broadly, the Russian invasion of Ukraine looks increasingly likely to be a protracted conflict. It’s still difficult to assess the impact of the war but, in some cases, markets and supply chains appear to have settled into a new routine. For example, re-rollers, who traditionally depend heavily on slab from Russia and Ukraine, were understandably concerned about their ability to source feedstock and prices increased quickly as a consequence. However, they have successfully been able to find alternative sources, easing concerns about production capacity.
European steel mills are being much more proactive in seeking out opportunities to supply domestic markets. Much of this is due to the fact that the recovery in automotive production has been stifled. On the face of it, underlying automotive demand is strong. For example, in the UK, the second-hand car market has soared due to the fact that delivery lead times for new cars are extremely long. However, a shortage of semiconductors and other components has severely impacted production volumes. These supply chain difficulties, of course, are not limited to the automotive sector, and they are compounded by labour shortages as the labour market struggles to re-align itself with post-covid demand.
The longer term view for automotive demand is difficult to predict. On balance, however, it appears likely to weaken, as inflation impacts consumer confidence and spending.
Import offers from non-European mills are available and increasingly competitive for mainland European buyers despite tariff quotas. Covid restrictions in China and a reduced appetite for exports have limited the availability of Chinese steel. However, it is reported that Russian material has found an outlet in China, which may result in a desire to focus on exports as steel production volumes increase as covid restrictions are lifted.
Indian material, has for some time been an attractive proposition to UK buyers – in HR, CR & coated products. But, last week, the Indian Government announced a 15% tax on all steel exports – effective immediately. Clarity is still required on existing orders that are still to be shipped. It is wait and see time, for the effect this will have on pricing, but, understandably offers from India are very scarce.
In the UK, the competitiveness of import tonnes is limited by the fall in the pound against the dollar due to concerns about inflation and the Bank of England’s ability to bring it under control. However, we must remember that domestic steel production will also be impacted by the increased cost of imported raw materials.
A cursory glance at the UK media will quickly lead you to take a pessimistic view of the short term outlook for the economy. Increased energy costs, labour shortages and inflation all loom large.
This will inevitably impact steel prices. However, European mills, in particular, must take, and are taking, a long term view when it comes to green technologies. Few would argue that energy costs are likely to be inflated for an extended period, and the pressure to invest in new technology and carbon reduction programmes will intensify as time passes. This will not be a cheap exercise and prices will need to be at a level to support this investment in the longer term if environmental objectives are to be met.