Why Exactly Do Steel Prices Change?

Steel prices have been on a steady upward trend since 2020, and especially in recent weeks when many steel products have been reaching record highs. Prices are skyrocketing, and more and more steel users are wondering: When is this going to change? How do I know if this is the right time to buy steel? This all leads to the fundamental question: What exactly are driving the constant changes in steel? In this article, we've analyzed the 5 most important factors in the complicated world of steel pricing.

1. Supply and Demand

In the commodity market, everything follows the principles of economics - supply and demand.

As the manufacturing industry booms, steel prices go up because more companies are in demand for steel under a limited supply. While the demand weakens, the balance of power shifts towards the steel users, and prices drop consequently.

Another factor that we need to take into consideration, apart from the current supply and demand, is the market sentiment, which is how the investors also look at forecasts and trends to decide how much steel should cost.

2. Cost of Raw Materials

Currently, iron ore and scrap metal are the 2 major raw materials used in the steelmaking process. That is to say, the production cost of steel is directly related to the prices and availability of iron ore and scrap. For example, for the past few months, the continuously surging prices of iron ore from Australia (the largest supplier of iron ore in global trade) have been directly reflected on recent spike in the steel market.

Meanwhile, the availability of scrap metal used for recycled steel production can also affect costs. If more buildings are being demolished than there are being constructed, the chances are there is greater availability of raw materials and so steel prices may go down.

3. Macroeconomic Policies

Policy is an extremely powerful factor that drives steel price changes. In the global steel market, policies relating to import & export, monetary policies that affect currency, and policies about sustainability matter the most.

For example, interest rates are greatly associated with the strength of a currency. Higher rates mean higher borrowing costs, which usually make a currency more attractive to investors seeking higher yields than in other currencies. So basically, higher rates domestically (or expectations of a rate increase) normally indicate a stronger currency, leading to declines in steel prices.

As for sustainability policies, one of the most talked about concepts, “carbon neutrality”, has been driving the steel prices upwards. By now there have been over 110 countries committing to achieving net 0 carbon emissions by mid-century, and China’s recently announced plan to achieve carbon neutral by 2060 means a significant shift in the steel industry including short-term output reduction, causing steel prices in China to rise further. (See this post for more information on carbon neutrality’s impact.)

4. Anti-dumping and tariffs

The rising steel prices in the global market is much related to the increasingly strict anti-dumping laws and regulations, with more tariffs on more and more steel grades.

Back in a few years, China was largely responsible for a great proportion of the world's steel production, and the cost of steel was reduced globally. However, more and more countries like the US and the EU have since imposed anti-dumping duties to try to shift steel dependence away from China and back to local production.

In response to the new anti-dumping laws and tariffs, China decreased its steel production and thus created a lower supply worldwide than there is a demand. Naturally, China's steel export to overseas also declined. Many steel producers worldwide are still behind in supplying sufficient steel to keep up with the market demands, which is why the lag in supply is driving up the price of steel.

Another example showcasing how much tariffs can impact steel price and the economy as a whole, is Trump’s increasing tariff on steel products in the US imported from all countries.

The US has always been far from being self-sufficient in steel, and imports over 30% of the amounts consumed. Given the industrial importance of steel, tariffs imposed on imports significantly increased the production costs for American manufacturers across a variety of industry sectors. Soon after the increased tariffs were announced, the price of steel in the US jumped to levels far above most countries around the world — a 50% premium over European prices and 80% over Chinese prices. This no doubt caused increasing risks and pressure on the American economy.

5. Season and Weather

The price of steel products experience changes during different times of a year. After all, it's a lot harder and therefore costly to get steel into cities that are deep in snow, or steel components out of a country that is celebrating a seasonal holiday.

Seasonal factors result in steel pricing fluctuations mainly in the following 2 ways:

• Seasonal weather's impact on shipping. Long rainy days, heavy snow, and all sorts of extreme weather events can seriously influence the shipping of steel products in a negative way.

• Different seasonal demand for steel. For example, high temperature will no doubt slow down the process of construction in buildings and infrastructure, thus reducing the need for steel materials.

About CUMIC

CUMIC Steel Limited has been serving the global market for over 15 years, with extensive experience in steel solutions for various sectors. With the vision to “Build the future with steel+”, we strive to build partnerships made of steel to connect the supply chain and be the agile partner who can give customers expert advice.

In a world where steel prices are becoming complicated and unstable, CUMIC offers professional market intelligence services to aid your steel sourcing.

• We offer free steel market analysis reports to our customers on a regular basis.

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Interested? Now download our latest FREE market intelligence report, Global Steel Market Outlook 2021, written by our professional team. For more information, contact us today via cumic@cumic.com.