The recent Covid-19 resurgence creates a huge concern in the steel industry, the contrary between the market participants as well as the disagreement on the future price direction.
The coming back of Covid 19: Difficulties for the steel buyers
The second wave of Covid-19 brings a steep increase in infected cases across Europe, which is now a growing concern for steel buyers. The uncertainty about future demands, particularly in the final two months, is now creating disagreement on the future price direction in the European steel sector. The market participants are either delaying their purchases or increasing them, depending on their outlook and sentiment.
There is a noticeable contrary in the market. Some customers have already placed their purchase requirements for the final quarter of 2020 while others are still considering or ordering only small quantities. For these clients, they anticipate price reductions in the coming months due to the doubt about whether the recent increases in mill sales volumes. They are not sure if the increase is the result of growth in real consumption or a release of pent-up demand, following coronavirus-related inventory drawdown. There will, undoubtedly, be winners and losers in this steel market gamble.
Possibility of steel shortages across the EU market
Numerous service centers are restocking due to growing shortages across the European steel sector, which set in the panic, especially for hot dipped galvanized products. The domestic mills might focus their production on their automotive customers – which dismays end-users in other segments.
Meanwhile, several local steelmakers will be busy until March 2021. However, they might cool down a bit by the end of this year thanks to the capacity due to come back on stream during the fourth quarter.
Will raw material costs fall?
In the short term, raw material costs might probably reduce. The booming demand in China causing an upsurge in iron ore costs but has been cooled down. China remained a net importing nation for steel in September, including trade-in semi-finished products. However, the demand has slowed in the country during October, which likely will affect a lot on the global steel markets, in the coming months.
The European steel market could change drastically towards the end of 2020 if Covid-related restrictions intensify. The problems will be all about the escalation in the coronavirus pandemic, and the re-introduction of measures to limit the spread of the disease. They could restrict the economic recovery in many EU countries. Nevertheless, local mills are expected to remain firm in their pricing policies. The potential for negative price movements is expected to be restricted, in the near term.
Source: MEPS International Ltd
