Steel and stainless steel market situation during August 2020

Let’s review the situation of the steel and stainless steel market in order to be able to talk properly.

Steel

China’s industrial recovery and financial stimulus means that iron ore futures continue to rise.

The prices of other steel products such as Chinese steel rebars behave similarly.

However, we observe a marked price divergence towards the final customer, in this case, we are talking about steel coils.

The upward trend in the prices of hot-rolled steel coils (HRC) in China and Germany are clear indicators of a market recovery after the COVID-19 restrictions in both countries, but they are clearly going at different pace.

Prices in China show a classic V-shaped recovery in steel consumption activities driven by massive cash pumps. These government expenditures have pushed up Chinese steel prices by about $100 per ton since early May. While EXW prices in Germany show a more gradual U-shaped recovery, the main German steel makers Thyssenkrupp and Salzgitter do not expect a significant market recovery before the fourth quarter. This Chinese sprint has brought the price of iron ore to levels of 6 years ago, with purchases of up to 112 million tonnes in a single month (July). Countries like Australia benefit greatly from China’s money. China’s crude steel production reached a new historical record of 93.36 million tonnes in July, with accumulated production in the first seven months 2.8% more than last year. None of this production is being exported as net steel exports are falling because of the tariffs. What will happen once the stimulus is withdrawn?

Stainless steels

The price of class I nickel, widely used in stainless steels and nickel alloys, has been steadily increasing. The relative strength of the Euro keeps alloy surcharges in a safe level in Europe.

Again, China’s expenditures, especially in infrastructure construction, are keeping the prices on the side up and are fuelling speculation with the nickel. In fact, thanks to the rapid recovery in China, metals went through the Covid crisis without suffering the kind implosion that hit oil. We can see this behaviour in other commodities indexes that include nickel as a flag material.

Elon Musk’s promise to sign a giant contract for the mining company able to provide it with “green nickel” (understood as environmentally friendly nickel sulfate) is not helping to moderate the prices of a nickel. Today Nickel sulphate openly competes with the electric vehicle, where two thirds of nickel demand is coming from stainless steel, and in the future, electric vehicles will account for half of the nickel market. On the other hand, a reliable supply of “green nickel” at low cost is a chimera in the absence of a technology that requires acids to separate nickel from pig iron.

What’s next?

The collapse in world trade has not been as bad as some feared. But there are dark clouds showing that there may be worse to come.

Baltic index sinks To 1-Month low as global rebound hopes fade.

The Baltic Dry Index measures the evolution of the sea freight cost of solid raw materials such as iron ore.

The WTO goods trade barometer is performing below trend since January, it doesn’t appear to be related to pandemic as you can see in this chart.

Are we facing a “double dip”?

Extra ball

The McKinsey consultants considers the Covid19 epidemic like a supply chain disruption that lasts a month or more and occurs every 3.7 years on average. Good news, metal manufacturing is among the segments with less exposure to a supply disruption.

But their findings suggest that dependence on a single source for raw materials can be a vulnerability. You can read the full report following this link.

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