“Steel has strength, but current pricing trends are even stronger”
Just when steel pricing trends seemed to have experienced a respite of sorts toward the end of 2021, the war in the Ukraine has helped push up steel prices for Q1 2022 in Europe by about 51% (56% in the U.S.). Europe was just starting to experience an economic recovery on the heels of Covid and the ensuing supply chain issues. They rely heavily on both Russian and Ukrainian steel production to the tune of about 20% overall.
The lack of a key product (pig iron) has been cited for one of the reasons that steel in the U.S. is up 56% over the same time period as the Europeans. 70% of U.S. steel production can be traced back to EAF’s, which use pig iron. Over 50% of the pig iron comes from Russia and the Ukraine. Both countries are experiencing work stoppages due to facility shutdowns because of either the war or sanctions.
Scrap prices are also being pushed up because of the shortage in pig iron. The U.S. has an abundance of scrap and oversees buyers have been looking to source product. Supply doesn’t meet demand here and base scrap pricing has been set, in a take it or leave it type of scenario.
Makers of automobiles and consumer products are raising the cost to end users as they pass down this increase it takes to now make their products. This is a combination of higher oil prices, renewed supply chain issues and simply the lack of supply on the heels of Covid (chip shortages, etc). Inflation in the U.S. just hit a 40 year high of 8.5% and 7% in the U.K. Early consensus from various financial institutions is talk of a recession, with severity to be determined, at some point in 2023. This author feels that steel prices will remain elevated for the foreseeable future, recession or not, because of infrastructure and other capex projects already contracted for.