When we see a return to some steel price stability? December 2022 Steel Director's Briefing
When, if ever, will we see a return to some steel price stability?
This is the question that many buyers would like answered as this period of incredible price volatility continues.After an unprecedented period of price increases, where new price highs were reached, we have seen prices quickly fall back to pre-pandemic and pre-Ukraine war levels.
Rapidly increasing energy costs and increases in steel production costs are largely irrelevant - Prices have continued to fall. There has been a very definite decline in steel demand at a global level. Covid restrictions in China have stifled demand and choked off the world’s largest steel market. Producers are therefore looking to other international markets to fill their order books. The removal of the Indian export tax is a good example of this in practice.
However, whilst foreign producers may be proactively seeking out alternative markets, including the UK, buyer activity is muted.Stock levels remain high, with service centres and end users continuing to work through older, higher-priced stock.Buyers are therefore incredibly cautious and only booking what they have to. The lack of certainty means that offers from non-European producers require serious consideration - given the market conditions, placing orders for April delivery and beyond seems a long, long way off.
Automotive production remains significantly affected by the shortage of semiconductor chips. It is reported, for example, that JLR plans to cut production at its Halewood plant and parts of its Solihull factory in the first quarter of 2023 so that it can divert chip supplies to its most profitable cars. It is difficult to imagine this situation changing in the short term but longer-term pent-up demand may rear its head further down the line.
The price of steel was clearly over-valued at the beginning of 2022, but it is now equally true to say that it is at an unsustainable level given the rising cost of production. The ongoing impact of the war in Ukraine and the global energy cost crisis are unlikely to change in the short term. However, the tide will eventually turn. Just this week, for example, China announced that it is relaxing Covid restrictions. The fear is that when things do change, they will change quickly.Some Asian Mills have already started announcing price increases on the back of this…. – Here we go again? Will these increases stick? Is this the start of the next phase?
At Cooper and Jackson, we have been fortunate in that our contractual customer agreements have delivered relative stability for our clients and ensured that we have a consistent order book. Our concern, and that of our customers and suppliers, is that when demand does return it will unleash another wave of excess, pent-up demand. Prices will once again rise quickly and outstrip supply, continuing this cycle of incredible volatility.
It’s a cliche, but all businesses crave a level of certainty. Current market conditions and the risk of ongoing volatility make that desire feel rather distant. Under those circumstances, it’s very difficult for our supply chains to plan and function effectively.