The steel market on a rollercoaster ride

The steel market is on a rollercoaster ride this year, having experienced a sleepy start to the year, panic buying caused by the war, a shocking rise in prices and a subsequent drop in turnover and prices until the end of the summer. Stockpiles built up during the increased stockbuilding in the spring lasted throughout the summer, often forcing distributors to sell some lots at a loss. September brought some recovery, according to the head of steel trading and production at Épduferr, but the future remains unpredictable. The downturn in the Chinese economy, the threat of a recession in Europe and a slump in the domestic construction industry all point to a contraction in demand, but steel shortages could still arise as plants are forced to shut down due to the energy crisis.

The steel market, which started the year relatively uneventfully, has seen some shocking turnarounds in the months of 2022 so far. In January, no one expected war to break out, but when it did, it triggered a panic among players across Europe. Everyone feared a shortage of steel products, and some companies made purchases that resulted in months of stockpiling.

THIS THEN MEANT A SERIOUS PRICE RISE IN THE STEEL MARKET, BUT A TURNAROUND CAME QUICKLY: OVER-SUPPLY AND THE INCREASINGLY THREATENING PICTURE OF AN ECONOMIC DOWNTURN MEANT THAT THE STEEL MARKET SLOWED DOWN SIGNIFICANTLY FOR A WHILE. THIS THEN LED TO A RENEWED FALL IN STEEL PRICES.

Inconsistent pricing
"During the summer, fears of a recession continued to grow and the trend persisted until the end of August. Now the fall has stopped, prices have stagnated, and perhaps another rise in steel prices is expected, although it is very difficult to say for sure," Roland Furda, head of steel trading and production at Épduferr Nyrt, told Portfolio. He added that in the past three months, distributors have received previous orders, but due to falling demand, they have found it very difficult to sell these items, so prices have fallen steadily and drastically. The price of coarse slab, which had been in the highs of over EUR 2 000, has now fallen to EUR 1 100. The same is true of hot and cold slab. The factory price of reinforcing steel was still at € 1400 in the spring, but by August it had also fallen to € 770.

THE BASIC REASON FOR THIS PHENOMENON IS THAT THE STOCKS ACCUMULATED BY USERS LASTED THROUGHOUT THE SUMMER, AND DISTRIBUTORS WHO HAD RECEIVED LARGE ORDERS WANTED TO GET RID OF THEM.

"While in the first half of the year prices rose so fast that the factories could not keep up, from May onwards distributors cut prices so much that many were selling at a lower price than the factories. In other words, some distributors were essentially selling at a loss stocks they had previously bought at a high price to ensure liquidity. We reacted in time to hectic market changes, but we know of several market players who expected stagnation or a downturn later on and found themselves in a difficult situation," said Roland Furda, explaining the contradictions of the situation.

Recession and energy prices
The question is of course what to expect in the near future after such a history. According to the expert, there are conflicting factors at play in the market, which means that for the time being only uncertainty seems certain. 

One of the key factors is that China’s GDP growth has not been this low in the past four decades, except for the single quarter during the coronavirus pandemic, after which the country saw a significant increase. This year, China’s economy is expected to grow by only 3 percent, instead of the previously expected 5.5 percent.

A SLOWDOWN IS ALSO EXPECTED IN EUROPE, WHICH CAN BE ATTRIBUTED TO THE FACT THAT THE WAR IS LASTING LONGER THAN EXPECTED AND, IN THE MEANTIME, AN ENERGY CRISIS HAS DEVELOPED, WHICH IS PARTICULARLY IMPACTING THE STEEL INDUSTRY.

Price Increase or Shutdown?

The steel industry is a major consumer of both gas and electricity. There are already worrying signs of the energy crisis, such as the shutdown of aluminum production units in Slovakia and galvanizing plants in Germany, as they are generating massive losses.

In other words, the steel market is currently facing a dual impact: on the one hand, demand is constantly decreasing, which is pushing prices down, but on the other hand, manufacturers do not want to produce at a loss, and the price of energy is so significant in production that a price increase is inevitable. The alternative is that some players will cease production, which could eventually lead to a shortage.

The situation is further complicated by the fact that the construction industry, a major steel consumer, is currently experiencing a downturn locally, as the government has halted many large-scale projects, and market participants are not making investments at the previous levels.

According to Roland Furda, September started more lively than the summer months, even so. However, how long this will last is a big question, and there is no sure answer to it.

“The outlook is not the best in the near future, so right now, everyone is making cautious decisions. I think the energy crisis will last until spring 2023, and unfortunately, this affects everything. I believe that the end of the war could bring some relief.”

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