US-based rating agency Fitch Solutions has stated that the recent rise in global steel prices will be short-lived, with prices starting to decline towards the end of the first quarter this year as steel production continues to be restarted. Steel mills continue to restart quickly with about 30 million mt of hot metal capacity back on stream since October last year.
Up to 30 percent of global steelmaking capacity (excluding China) was idled or production at steel mills significantly reduced in response to the drop in demand caused by the pandemic. However, the recovery in automotive production and white goods manufacturing was quicker than expected. The restarting of steel plants was not sufficiently quick to meet growing demand, with restocking across the steel value chain in Europe and the US creating additional demand. As a result, steel prices surged in all regions in late 2020.
Steel prices in China peaked in December 2020, when the country entered a period of seasonally lower demand, inventory levels increased and margins declined. Fitch expects that China’s steel demand in 2021 will be marginally lower due to the smaller scope of stimulus programs planned and a potential reduction in steel exports.
“The steel industry remains subject to various risks that could affect demand, prices and margins, including those related to the pandemic, such as a wider virus spread, slow vaccination and new strict lockdowns. Growing steel demand is to a large extent driven by a recovery in the automotive sector. Political and geopolitical developments, such as a reduction in government stimulus programs, policies to cut emissions and trade wars, could increase pressure on the sector,” Fitch said.