A hot topic of discussion in today’s manufacturing space is steel pricing. The onset of COVID-19 produced a sharp contraction in economic activity in the early months of 2020, causing steel prices to fluctuate.
While steel prices across the globe were predicted to rise in 2020 due to the generally positive outlook for steel demand and the slowing of Chinese steel production, no one expected them to fluctuate like they did. According to Bloomberg, the rise in U.S. steel prices can be attributed to a supply squeeze as opposed to a genuine surge in demand.
Impact of COVID-19 on Steel Prices
COVID-19 and its effects on the steel market is often compared to that of the Great Recession. Both economic collapses were severe, unexpected, and took a large toll on steel demand. The price of steel was at $610/ton at the beginning of 2020 and decreased to $580/ton in March when the pandemic hit the United States. The price of steel hit a low of $440/ton in mid- August, according to Steel Market Update.
However, in the last few months of 2020, the price of steel has increased by upwards of $200/ton. This price increase is due to mills dialing back on production, as well as maintenance outages and equipment failures. In fact, steel mills in the United States made 78.73 million tons of steel in 2020, a 17.7% decrease compared to the 95.7 million tons made in 2019. This caused a tight supply of steel in the final months of 2020, resulting in much higher prices.
According to The Fabricator, there are several reasons to believe that steel prices are likely to trend lower as we make our way into 2021:
Concern over COVID-19 is still hampering commerce and steel demand.
Steel demand is seasonally weaker at this time of year.
Scrap prices tend to track with steel demand.
Service centers have already replenished their inventories with the material they will
need for the rest of the year and perhaps into Q1 2021.
Mills won’t be able to keep production in check and supplies tight in pursuit of higher
prices indefinitely as new capacity begins to come online.
The past year is a testament to the fact that projecting the coming year for the steel industry is difficult, as the possibility of unexpected events is not out of the question. Despite all that the steel industry has seen this year and years past, the economic and political implications, and the shifts that we may see going forward, there is good reason to remain optimistic about the future of the steel industry.
For more information on steel pricing or to request a quote for your next project, contact Dayton Rogers today.
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