Returning capacity to depress first-quarter steel prices: Fitch

Posted on 05 February 2021

The recent rise in global steel prices will be short-lived, Fitch Ratings says, as an increasing number of mills are bringing hot metal capacity back on line.

“The restarting of steel plants was not sufficiently quick to meet growing demand, with restocking across the steel value chain in Europe and the US creating additional demand, and steel prices rallied in all regions in late 2020 as a result,” the agency comments in a note seen by Kallanish.

However, about 30 million tonnes/year of hot metal capacity has come back on stream since October 2020. Many previously idled mills in the US and EU are already in operation, although there is a time lag for production to fully ramp up.

“We expect prices to drop at some point in the first quarter of 2021,” Fitch foresees. “Steelmakers are enjoying high profit margins… although input costs are catching up. High raw material costs may temporarily support steel prices provided that steel demand is robust.”

China's steel demand in 2021 will be marginally lower due to a smaller scope of stimulus programmes planned and a potential reduction in exports of steel-based goods, the agency observes.

“However, the steel industry remains subject to various risks that could affect demand, prices and margins, including those related to Covid-19, such as a wider virus spread, slow vaccination and new strict lockdowns,” Fitch says. “Growing steel demand is to a large extent driven by a recovery in the automotive sector, but semiconductor shortage is a risk for continuing demand recovery.”

Political and geopolitical developments, such as a reduction in government stimulus programmes, policies to cut emissions and trade wars, could increase pressure on the sector, it adds.

Source : Kallanish