PROCUREMENT UPDATE FEBRUARY 2021 - Steel & Tube
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FEBRUARY 2021 PROCUREMENT UPDATE
ARE PRICES PEAKING?
Fast rising commodity prices have driven home the fact that commodity prices are volatile, unpredictable and
subject to shocks.
While China, the juggernaut in the global economy continues to forge ahead with expansion plans and steel
demand in the rest of the world strengthens as a result of vaccination programmes, subsidies and stimulus
measures; freight rates continue to increase as businesses clamor for space on vessels. This combination of
strong sales and supply chain disruptions will likely continue to impact on stainless and steel product prices.
As commodities are subject to shocks, the steel industry remains subject to risks around capacity control,
those related to the pandemic, reduction in government stimulus programmes, policies to cut emissions and
trade wars, all of which could put pressure on to reduce demand, margins and prices.
STAINLESS STEEL
LME Nickel Price USD/T Last 6 months
LME Nickel Price USD/T Last 6 months
19,000 29.8% 35.0%
18,000 30.0%
25.0%
17,000
20.0%
USD/T
16,000
15.0%
15,000
10.0%
14,000 5.0%
13,000 0.0%
Source: LME Nickel - London Metal Exchange settlement rates
The Nickel price has increased further in 2021 with news of the leading to increased demand for nickel. The recent Nickel
COVID-19 vaccines, the resulting global economic recovery, price rally however is likely more about the supply of nickel
the introduction of further stimulus measures aimed at ore keeping pace with demand from China’s giant stainless
‘green’ industries and continued concerns about long- steel industry. China already accounts for 50% of Nickel
term nickel supply. The evolving side story though through ore demand to feed its massive manufacturing sector, with
2021 and on-going is likely to be centred on battery nickel new projects in China’s infrastructure sector increasingly
demand, which will potentially surge as the EV (Electronic preferring stainless steel over any other material (steel
Vehicle) demand increases.¹ or iron) due to its non-corrosive nature improving asset
longevity. Nickel prices are expected to continue with their
Demand for EV is strong from China as the country moves
upward trend in 2021.
towards green energy. This will probably flow through to
prices as more charging stations will be needed across China
2 Steel & Tube Procurement Update | February 2021CARBON STEEL MAKING RAW MATERIALS
Chinese Domestic Iron Ore Price USD/T Last 12 Month
Chinese Domestic Iron Ore Price USD/T Last 12 months Iron Ore has
increased, 72%
210.00 since Nov'19 80.0%
200.00 70.0%
190.00
60.0%
180.00
170.00 50.0%
USD/T
160.00 40.0%
150.00 30.0%
140.00
20.0%
130.00
120.00 10.0%
110.00 0.0%
Source: Trading Economics USD/T % Change
On the back of Chinese demand ore prices have skyrocketed to its highest level since September
On the back of Chinese demand ore prices have skyrocketed Price pressure is expected to continue as iron ore inventories
2011
to gaining over
its highest level70%
sinceduring the year.
September Chinaover
2011 gaining imports
70% ~70 per centcontinue
in China of the world’s
to fall andiron ore. shipments are
inbound
during
China the year.
forged more China
thanimports ~70tonnes
1 billion per centof
ofcrude
the world’s hampered
steel in 2020 becauseof
and imports of trade tensions
iron ore with Australia and
reached
iron ore. major Brazilian ore producer Vale SA downgrading its output
record levels of more than 1 billion tonnes per annum, as China’s recovery plan – centred on
guidance for 2021 due to COVID.
infrastructure, energy
China forged more and
than housing
1 billion projects,
tonnes of crudesharply
steel in increased demand for iron ore.
2020 and imports of iron ore reached record levels of more Meanwhile, with a $3 trillion dollar infrastructure spending
Wethan
will 1therefore notper
billion tonnes likely see as
annum, anChina’s
end to the recent
recovery plan price surge anytime
programme soon,inwith
proposed ore inventories
the U.S.A. and several fiscal
in China continuing to fall and inbound shipments hampered because of trade tensions with
– centred on infrastructure, energy and housing projects, stimulus plans announced in many developed economies,
Australia
sharplyand majordemand
increased Brazilian ore ore.²
for iron producer Vale SA downgrading its output
manufacturing guidance
activity is set tofor 2021globally,
increase due to further
COVID. tightening supply and prolonging the current price curve.
Meanwhile, with a $3 trillion infrastructure spending plan proposed in the U.S.A; along with several
green recovery programmes boosting infrastructure investment announced in many developed
economies and the expected end of the global COVID pandemic likely to increase manufacturing
activity globally - we could see demand continue to outpace iron ore production, further tightening
supply, which would prolong the current price curve.
COKING COAL
3 Steel & Tube Procurement Update | February 2021Australian Hard Coking Coal Export Historical Price Graph
COKING
170.00
160.00
COAL 20 Mar 20, $163.10 29 Jan 21, $158.00
150.00
Australian Hard Coking Coal Export Historical Price Graph
140.00
USD/T
130.00 Australian Hard Coking Coal Export Historical Price Graph
29 Nov 19, $135.10
120.00
170.00 20 Mar 20, $163.10 29 Jan 21, $158.00
110.00
160.00
100.00
150.00
90.00
140.00
USD/T
130.00
29 Nov 19, $135.10
120.00
110.00
Coal 100.00
futures spiked in January over supply concerns with strained relationships between China and
Australia
90.00over trade, politics and the origins of COVID 19, which saw about 70 ships containing an
estimated 6 million tonnes of Australian thermal and metallurgical coal sitting off the coast of China
waiting to unload. Coal prices had previously been recently supported by increased energy
requirements because of colder than usual temperatures in many parts of the northern hemisphere,
Source: Trading Economics
and post-Covid industrial demand from China which accounts for 40% of global coal demand.
Coal futures spiked in January over supply concerns with strained relationships between China and
Coal futures spiked in January due to supply concerns of China waiting to unload.³ Coal prices had previously been
Australia over trade, politics and the origins of COVID 19, which saw about 70 ships containing an
with strained relationships between China and Australia supported by increased energy requirements because of
estimated 6 million tonnes of Australian thermal and metallurgical coal sitting off the coast of China
over trade, politics and the origins of COVID 19. This saw colder than usual temperatures in many parts of the northern
waiting
aboutto 70 unload. Coal prices
ships containing had previously
an estimated been recently
6 million tonnes of supportedand
hemisphere, by increased
post-Covid energy
industrial demand from China
requirements because of colder than usual temperatures
Australian thermal and metallurgical coal sitting off the coast in many parts of the northern hemisphere,
which accounts for 40% of global coal demand.
and post-Covid industrial demand from China which accounts for 40% of global coal demand.
SCRAP STEEL
SCRAP STEEL
Scrap Metal Prices - HMS 1/2 80:20
Scrap Metal Prices - HMS 1/2 80:20
500 475
450 STEEL
SCRAP
447 397
Scrap
400 Metal Prices - HMS 1/2 80:20 380 423
387
500
350 372 475
314 368
310 303
450
300 293
321
299 299 293 447 397
278 280 282 380
400
250 270 423
250
387
350
200 372 368
310 314
3 Aug 1 Sep 1 Oct 303
1 Nov 1 Dec 1 Jan 1 Feb
300 293
321
Steel Scrap Turkey Taiwan Containerized CFR East Asia Import CFR
299 299 293
278– Feb 2021
Source: ASN 280 282
250 270
250
200
3 Aug 1 Sep 1 Oct 1 Nov 1 Dec 1 Jan 1 Feb
Steel Scrap Turkey Taiwan Containerized CFR East Asia Import CFR
4 Steel & Tube Procurement Update | February 2021LME Scrap Steel Price graph (USD/T)
LME Scrap Steel Price graph (USD/T)
490
$ 477
480
470
460
450
440
430
420
410
400
USD/T
390
380
370 $ 396
360
350
340
330
320 $ 293
310
300
290
280
Source: LME Ferrous Metals - London Metal Exchange settlement rates
Recycled steel (sometimes called scrap steel) is one of the by 27 million metric tons to 1.284 billion metric tons by the
Recycled steel
industry’s (sometimes
most called
important raw scrap575
materials. steel) is tonnes
million one of the industry’s
end of 2021,most
Chinaimportant
may top the raw
recordmaterials.
13.7 million tonnes of
575ofmillion tonnes
recycled of used
steel was recycled steel about
to produce was used to produce
1.9 billion tonnes about 1.9 billion
steel scrap tonnes
it imported of crude
in 2009.⁵ If thissteel last China will
eventuates
year.
of crude steel last year.⁴ possibly have a similar impact on the Asian scrap steel price
as it does on global iron ore, pushing prices further during
Manufacturing over 50% of worldwide steel production,
Manufacturing over 50% of worldwide steel production, China 2021.essentially setslikely
This is especially the global price
while there for a shortage
remains
China essentially sets the global price for seaborne iron
seaborne iron ore. In more recent years China has satisfiedofit’s highscrap
gradesteel
scrapmaking
available,raw material
mainly due to a significant
ore. In more recent years China has satisfied it’s scrap steel
requirements throughrequirements
making raw material domestic supply,
throughhowever with an expected
domestic supply,
reduction crude
in scrapsteel capacity
exports from theincrease
U.S. by
27 million
howevermetric
with antons to 1.284
expected crudebillion metricincrease
steel capacity tons by the end of 2021, China may top the record 13.7
million tonnes of steel scrap imported in 2009, some analysts even saying it could reach 20 million
tonnes. If this eventuates China will likewise have a similar impact on the Asian steel scrap price as it
does on global iron ore. The return of China to importing scrap is sure to have an inflationary impact
on prices during 2021, especially while there remains a shortage of high grade scrap available,
mainly due to a significant reduction in scrap exports from the U.S.
STEEL PRODUCT INDICES
Flat Products - Manufacturing Steels
5 Steel & Tube Procurement Update | February 2021STEEL PRODUCT INDICES
Flat Products - Manufacturing Steels
1050
996
1000 970
950
900
850 830
HDG Shanghai
800
750 797
768 HRC North America
700 676
654
HRC SE Asia
650 690 629
613
USD/T
593
592 583 591 645
573 615 HRC China
600 566 635 634 608
555 619
550 528 526
575 525 502 568 Slab SE Asia
548 487 540
500 535 513
520 511 490
508 439
450 425 479 470 472
405 395 460
432
400 425
375 396 415
350 380 390
350 345
300
250
200
Source: ASN – Feb 2021
Long Products - Construction Steels
700
650 632 Wire Rod
595 632
586 601
600 568 566 565 560 567 555 593 591
553 554 583
537 583
550 520 537 515 532 563 Rebar China
503 500
479 475
500 461 532
461 453
USD/T
425 438 423 Rebar Turkey
450 418
399 467 475
372 459 387
400 453 372
Long Products - Construction 423
Steels
402 414
350 395 Rebar SE Asia
293 299 292 293
300 263 263
242
250 224 Scrap Turkey
200
1 Apr 1 May 1 Jun 1 Jul 3 Aug 1 Sep 1 Oct 1 Nov 1 Dec 1 Jan 1 Feb
Source: ASN – Feb 2021
With the flattening of increases we have seen in recent days in the finished product (and
commodity) indices, another way to consider the pricing outlook is to consider future prospects for
the
6 global steelProcurement
Steel & Tube supply-demand
Updatebalance.
| FebruaryIn2021
this respect, it is noteworthy that:With the flattening of increases we have seen in recent days The OECD meanwhile consider that over the three year
in the finished product (and commodity) indices, another period 2020-2022, global crude steel gross capacity will
way to consider the pricing outlook is to consider the future increase by approximately 2.5-3.3% from an end-2019 level
prospects for the global steel supply-demand equation. of 2.36 billion tonnes. This is equal to an increase in steel
In this respect, it is noteworthy that: capacity of ~23 million tonnes per year.7
The World Steel Association consider that global steel On this basis, the increase in steel demand will likely
demand growth in 2021 will amount to 4.1% (from 1725 outpace the rise in steel supply (capacity) in 2021, which
million tonnes of finished products in 2020, to 1795 million has the potential to extend higher steel prices through
tonnes in 2021). This is equivalent to a 2021 increase in steel the year, despite recent softening prior to the Chinese /
consumption of ~70 million tonnes.⁶ Lunar New Year.
SHIPPING
There has been no let-up in the soaring freight costs being Christmas and Lunar New Year holiday seasons, ongoing
seen and experienced since late last year. The cost of demand for Personal Protective Equipment, and a reduction
shipping a container of product has risen by 80 percent since in global air freight capacity. Many businesses are also now
Q3 last year and has tripled over the past year. adding “safety stock” to normal inventories, catching up
from not ordering over lockdown and buffer themselves
Last year’s stop-and-go global economy effectively shifted 5
from unplanned demand spikes and potential supply
million (~25%) shipping containers from the first half of the
disruptions that could be triggered by a second wave
year to the second half — on top of customary
of the virus in various countries.
trade flows.8
This has left ports and cargo carriers battling to keep pace.
With Asia manufacturing in excess of 40% of the
Port congestion has further contributed to slow container
world’s consumer goods, and a large shift in consumer
turnaround and increasing container charges. More than
(e-commerce) spend to manufactured goods due to
one-third of the containers transiting the world’s 20 largest
COVID lockdowns, many Asian exporters struggled to meet
ports last month failed to ship when scheduled.⁹
demand for their goods because millions of empty shipping
containers had yet to cycle back from the markets that buy Add to this the anticipated demand for refrigerated containers
their products. This has caused a scramble for containers for COVID-19 vaccine logistics, and that shipping container
contributing to a spike in ocean rates and multiple different manufacturers have a 5 month backlog in orders and their
bottlenecks all at the same time. production costs have drastically risen over 50% in some
instances – there appears to be little respite on horizon in
In addition, container availability and shipping space has
respect to shipping delays and higher freight costs.10
been further impacted by escalating demand prior to the
WHAT DOES THIS MEAN FOR STEEL & TUBE?
Covid-19, transport delays, higher freight rates and additional congestion charges, increased commodity
prices and strong domestic demand for finished steel and stainless products have pushed prices globally
– a situation we cannot isolate ourselves from. As such, Steel & Tube has had to announce price increases
varying in range based on necessity.
Given the volatile nature of commodity markets and the ongoing supply chain disruptions higher prices are
likely to continue well into 2021. With further adjustments likely to come within short cycles, it’s a million
dollar question on what point we are presently at in the cycle.
Prepared for Steel & Tube by Brendan Smith, National Manager, Carbon Steel & Stainless
7 Steel & Tube Procurement Update | February 2021Sources Notes: 1. IEA Global EV Outlook 2019 2. Mining.com 3. Reuters.com – ‘Dalian coking coal hits two-month low as China demand falls, supply woes ease’ 4. World Steel Association 5. S&P Global Platts – ‘Commodities 2021: China’s steel exports set to rise as domestic property demand falters’ 6. World Steel Association, Short Range Outlook October 2020 7. OECD Latest Developments in Steelmaking Capacity, Q4 2020 8. Washington Post – ‘Pandemic aftershocks overwhelm global supply lines’ 9. Washington Post – ‘Pandemic aftershocks overwhelm global supply lines’ 10. CNBC – ‘An ‘aggressive’ fight over containers is causing shipping costs to rocket by 300%’ This procurement update has been prepared by Steel & Tube Holdings Limited. The information contained in the update is of a general nature and is not intended to be a complete description of the international steel market. Steel & Tube makes no warranty as to the accuracy or completeness of this information. 8 Steel & Tube Procurement Update | February 2021
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