The note that follows considers the outlook for world steel prices in 2021 and beyond.The price cycle - MCI view
A notable characteristic of world steel prices is that they are highly cyclical. As can be seen in the chart below, prices move from peak to trough every few years. Looking at pricing for typical steel products such as hot rolled coil (HRC) or reinforcing bar, the latest prominent peaks occurred in March 2005, August 2008, August 2011 and April 2018, with price troughs occurring in February 2006, May 2009 and February 2016. Across these products, the average peak-to-peak or trough-to-trough time over the last 25 years works out at ~3-4 years. In our view, the next price peak can be thus expected around end-2021 and the next pricing trough will occur in the latter half of 2023.
It is MCI's view that - at the time of writing (January 2021) - international steel prices appear to be on an upward trend, rising from a recent mid-2020 low.Near term steel prices - analyst view
Other analysts also consider that prices are currently on a rising trend.
Another way to consider the pricing outlook is to consider future prospects for the global steel supply-demand balance. In this respect, it is noteworthy that:
On this basis, we judge that the year 2021 increase in steel demand will outpace the rise in 2021 steel supply (as judged by steel capacity), leading to a significant improvement in 2021 capacity utilisation worldwide, as compared to year 2020 plant loading. In MCI's view, the improved plant loading in 2021 would be expected to result in higher steel prices in 2021 as compared to 2020 price evels.Raw material price projections
Raw materials constitute a dominant cost input in iron and steelmaking. Further insights into the near-term outlook for international steel prices may therefore be gained by considering price projections for steelmaking raw materials such as iron ore. In the latter half of 2020, these prices had started rising quite markedly - with the Chinese iron ore price (62% Fe spot price for iron ore fines, CFR Tianjin port) increasing from a level of ~$100/t in mid-2020 to well over $150/t by the 2020 year-end.
By January 2021, notwithstanding Chinese government calls for sharp cuts in the country's steel output, these iron ore prices had leapt to $165 / tonne [see Jan 2021 iron ore price report] because of an unprecedented level of demand. According to Westpac, ore prices in early 2021 could go as high as $180/tonne. Indeed, Westpac further considered at end-2020 that "With steel prices continuing to lift further through December, and steel inventories (at both traders and steel mills) rising only modestly, it appears that strong steel sales will continue to be supportive of high iron ore prices at least into the first half of 2021" [see Westpac iron ore price projections].
Platts also note that after an iron ore price peak in 2021, prices may drop by roughly $5-$10/mt each year over the next few years, from an average of $95/mt in 2021, to ~$85/mt in 2022 and ~$75/mt by 2023 [read the Platts forecast].Steel price outlook
Taken together, MCI's assessment of the current level of steel prices in the context of the longer-term price cycle; with our assessment of expected changes to the steel supply demand balance in 2021; and our review of the near-term outlook for iron ore prices – all point to a continuation of steel price recovery as year 2021 unfolds. The MCI assessment therefore is that steel prices will rise to a peak in the final months of year 2021, declining throughout 2022 to a trough towards end-2023.