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World Steel Industry Outlook.

Year 2020+ Steel Price Projections

The note that follows considers the outlook for international steel prices for 2020 and beyond.

The steel 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 a typical steel product such as hot rolled coil (HRC), the latest prominent peaks occurred in March 2005, August 2008, May 2011 and May 2018. For steel reinforcing bar (rebar), recent price peaks were evident in May 2004, August 2008, August 2011 and April 2018. Across these products, the average peak-to-peak time works out at ~54 months; meaning that the next price peak can be expected around October or November 2022.

steel price cycle
Note: Price data from ISSB. Figures are monthly average export fob prices, in $ per metric tonne.

It is MCI’s view that - at the time of writing (January 2020) - international steel prices appear to be on a downward trend, possibly approaching a trough in Q1 2020 or a little beyond.

The steel price cycle - analyst view

Other analysts also consider that prices are currently approaching the bottom of the cycle. Thus, The Fabricator in October 2019 contemplated whether hot band prices in the USA had hit rock bottom, or whether they perhaps had a little further to fall. Commenting on European steel prices, UK-based MEPS similarly commented in November 2019 that European steel prices were probably approaching the bottom of the cycle.

Supply demand outlook

Another way to consider the steel price outlook is to consider future prospects for the global steel supply-demand balance. In this respect, it is notable that:

  • The World Steel Association consider that global steel demand growth in 2020 will amount to 1.7% (from 1775mt of finished products in 2019, to 1805 mt in 2020). This is equivalent to an increase in steel consumption of ~30 million tonnes.

  • The OECD meanwhile consider that over the period 2019-2021, global crude steel gross capacity will increase by approximately 4-5% from a level of 2.3 billion tonnes. This is equal to an increase in finished steel capacity of ~50 mt / year. Whilst the net increase in finished steel capacity could (because of permanent plant closures) be significantly lower than this level of 50 mt/year, our assessment is that permanent capacity closures in 2020 and in 2021 are likely to be small or negligible. This is largely because Chinese goal to cut capacity of 150mt by 2020 was achieved by end-2018, meaning that further large-scale Chinese capacity closures are unlikely over the near-term – a viewpoint that is reinforced by China's exit from the Global Forum on Steel Excess Capacity in October 2019.

  • Independently, Platts also estimate China's net crude steel capacity expansion will exceed 37 million mt/year over 2019-23.

Overall, these matters point to an expansion in 2020 of world steel supply that exceeds the probable increase in world steel demand – which must point to a small deterioration in steel prices between 2019 and 2020.

Raw material price projections

Raw materials constitute a major 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. At end-2019 generally, these price forecasts were bearish. Thus,

  • Westpac economists in Q4 2019 expected year-end 2020 iron ore prices to fall to US$65 per tonne (a 2020 price fall of almost 30%).

  • The World Bank in October 2019 similarly also predicted a medium-term fall in the iron ore price, from $92/t in 2019 to $81/t in 2020 and $80 in 2021 (falling to $75/t by 2025). According to this source, thermal coal and natural gas prices can also be expected to fall over the medium term.

Steel price outlook

Taken together, MCI's assessment of the current level of steel prices in the context of the longer-term price cycle; our assessment of expected changes to the steel supply demand balance in 2020; and our review of the medium-term outlook for iron ore prices – all point to a protracted steel price recovery. The MCI assessment is that steel prices in year 2020 will therefore remain close to 2019 price levels; with perhaps a small price recovery in 2021; with no notable pricing improvement until the next peak in the steel cycle which can be expected at end-2022.

For longer-term steel price projections, see our 5 year steel price projections or check out our 10 year steel price forecasts.

Metals Consulting International Limited
1st January 2020

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