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Reason Behind the Rise in Steel Prices

The global steel market has weakened over the past months as the COVID-19 lockdowns in parts of China, the conflict between Ukraine and Russia, and spiraling inflation heightened the demand outlook uncertainty in 2022 and 2023.

In the Short Range Outlook (SRO) for 2022 and 2023, the World Steel Association mentioned the global spillovers from the war in Ukraine. The low growth in China points to reduced growth expectations for global steel demand in 2022.

Reason Behind the Rise in Steel Prices

There are further downside risks from the continued surge in virus infections. It has happened in some parts of the world, especially in China, and rising interest rates have exacerbated the issue. The expected tightening of the US monetary policy may hurt vulnerable emerging economies financially in a feedback loop.

Amid the demand for dim steel this year, US steel prices have been falling since March 2022, although they remain elevated. Regarding futures traded on the Chicago Mercantile Exchange (CME):  the June 2022 contract settled at $1,180 per short ton, down 12% compared with a month ago.

In this blog, we have covered steel commodity prices and their outlook.

China’s steel demand falls on zero-Covid policy

China is one of the world’s largest steel consumers and producers, accounting for over half of global finished and output steel demand. According to the industry body of the WSA, China produced 1.053 billion tons of crude steel in 2020, equivalent to the global output of 56.7%.

China steel demand and prices may rebound when the Covid lockdown ends

Shanghai has been under lockdown since May 24; widespread testing and restrictions were rolled out in the capital city Beijing, and it remained unclear when normal economic activities may resume in China.

As a result, many analysts also ended up downgrading the expectations for Chinese steel demand and price outlook.

The cost of raw materials, especially coal and iron ore, is expected to remain high in 2022. The reason is the state-mandated measures and geopolitical tension to reduce carbon emissions.

Growth of global steel demand in 2022 and 2023

Even with the cause of uncertainty by the Ukraine war and lockdown in China, the global steel demand is predicted to rise in 2022 and 2023.

Global steel consumption was expected to increase by around 1.84 billion tons in 2022, compared to 0.4% in 2021. As per the forecast, in 2023, the steel demand forecast is expected to grow about 2.2% to 1.88 billion tons.

Apart from that, as per the predictions, a war in Ukraine is expected to end in 2022, but the sanctions on Russia remain largely. Sanctions imposed on Russia have to lessen the availability of steel in Europe.

Russia has also produced 75.6 million tons of crude steel in 2021, accounting for 3.9% of the global supply.

Top reasons behind the increase in steel demand

Steel prices will remain high throughout the second quarter of 2021, and here are the top 3 reasons behind this:

Increase demand

There has been a clear demand for materials like Stainless steel, and with the stemming demand among the Asian countries, it has become a trend now spreading worldwide.

Despite a growing surge of rising demand prices, especially within China, steel mills do not usually benefit from increased profits. It is primarily due to the surge in Iron ore prices amid the post-virus economic recovery.

Growing demand has seen a rise in companies’ stocks due to lesser availability of steel. As a result, it has further reduced the availability and naturally caused prices to increase.

New lockdowns around China

The economic events within China have heavily impacted steel production. The events are primarily associated with the global pandemic. The recent spike in COVID-19 cases, where 20% of steel production happens, has resulted in subsequent issues and a lockdown for steel prices.

Nickel price increases

One of the key drivers of price increases, especially within stainless steel, is the rising trade value of Nickel. The commodity boom of Nickel is driven further by an ever-increasing demand for Nickel used in the production of electric vehicles and flanges, which significantly impacts stainless steel prices.

Conclusion

Rising steel prices will increase the upfront costs your will need to put into completing a project. The biggest risk is cash flow issues which you must be prepared to use in your projects.

You can contact Texas flange if you want the best quality steel flanges. We will help your company navigate this market moving forward.

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