As we close 2024, many of us are reflecting on the market dynamics that are likely to shape the steel industry in the upcoming year. I'd like to highlight a few key areas I'm keeping an eye on that could affect steel prices and demand in 2025.
Steel plate prices, as measured by various indexes, continued to decline over the course of 2024. Although prices have fallen steadily since January, the rate in which they decreased started to slow as we stepped into Q4 2024, which has given hope that that market will begin to stabilize before turning around and rebounding in 2025.
According to the World Steel Association's October 2024 Short Range Outlook Report, we can expect to see global steel demand finally rebound after three years of decline by 1.2% year-over-year in 2025 to reach 1,772 Mt. This marks a downgrade from World Steel's April 2024 Short Range Report, which predicted that we would see a 1.7% rebound to reach 1,793 Mt this year and predicted steel demand to grow 1.2% in 2025 to reach 1,815 Mt.
World Steel's report states that despite some ongoing challenges - lingering effects of monetary tightening, elevated costs, limited affordability and geographical uncertainties - analysts are cautiously optimistic that global steel demand will enter a phase of broad-based moderate growth in 2025.
In December 2024, the Federal Reserve announced a further reduction of 25 basis points to the federal funds rate, marking the third consecutive rate cut of the year and adjusting borrowing costs to a range of 4.25%-4.5%, aligning with market predictions. The so-called dot plot suggests that officials now foresee only two rate cuts in 2025, amounting to a total of 50 basis points, in contrast to the full percentage point of reductions anticipated in the previous quarter. In this respect, the December reduction was viewed as a hawkish" cut due to the Fed signaling what is coming is less dovish" and the terminal rate will be higher than was previously expected.
Additionally, the Fed revised its GDP growth projections for 2024 to 2.5%, up from the 2% forecast made in September. Looking at 2025, the Fed now estimates GDP to be at 2.1%, which is also an increase from the prior 2% prediction.
As we analyze the economic landscape heading into 2025, the recent Consumer Price Index (CPI) print reveals a concerning trend: inflation appears to be reflating" despite the Federal Reserve interest rate cut in December. The Fed finds itself in a challenging position, as it must weigh the dual goals of controlling inflation while supporting economic growth. This delicate balancing act may lead to uncertainty in financial markets, impacting investment decisions within the steel sector.
Considering the impact that interest rates and government fiscal policies have on both consumer and business demand, as well and the broader economy, I will be closely monitoring these developments throughout 2025.
It's not hard to notice the renewed optimism for 2025 from many across the steel manufacturing sector following the November election, but recent comments from the incoming administration are not universally celebrated. President-elect Donald Trump announced plans to impose significant tariffs on the United States' three largest trading partners: Canada, Mexico and China. He outlined his strategy for fulfilling campaign commitments that could potentially ignite trade conflicts. Trump stated he would introduce a 25% tariff on imports from Canada and Mexico until those countries take stronger measures against drug trafficking and illegal immigration at the border, a decision that may violate existing free trade agreements.
Opinions vary on the likelihood of the Trump administration following through with the implementation of tariffs, and while some are strongly in favor of the idea in hopes it leads to reshoring of manufacturing in the U.S., others are skeptical. Some have cautioned that Donald Trump's proposed significant tariffs on imported goods could negatively affect the economies of all parties involved, leading to increased inflation and adverse effects on employment. Additional tariffs would likely be a catalyst for increased volatility in plate prices, as we saw after the 2018 tariffs. Price variability can yield both positive and negative effects for customers, which makes planning even more critical. Increased communication with our business partners will be more important than ever as we navigate the changing market dynamics ahead. I will be watching these tariff changes closely to gauge the impact on future plate demand and pricing trends.
In 2024, we saw a gradual decline in inflation rates. Starting at 3.1% in January, inflation reached its highest point of 3.5% in March before beginning its downward trend. In light of the easing inflation, the U.S. Federal Reserve modified its monetary policy to foster economic growth. Inflation rates have since ticked back up a bit and the treasury market is indicating fear of persistent inflation heading into 2025, which will leave the Fed in a challenging position. Given that both inflation and monetary policy play crucial roles in influencing demand and the overall economy, this is an area I am watching closely for 2025.
In a recent report, analysts at Goldman Sachs expect policy changes proposed by the incoming administration to not substantially alter the trajectory of the economy or monetary policy. It is predicted that the impact of the tariff increases, tighter policy to lower net immigration and an extension of the expiring 2017 tax cuts might appear most quickly in the inflation numbers. Their forecast places core personal consumption expenditure (PCE), which is the Fed's preferred inflation gauge, at 2.4% in November of 2024.
Throughout 2024, we saw manufacturing activity fluctuate and rebound less than expected, according to the ISM Manufacturing PMI.
While the recent NFIB Small Business Survey indicated an impressive jump in the headline index to 101.7”the highest level since June 2021”there is still an underlying caution in the manufacturing sector. The strong performance of small businesses is certainly a positive sign, as over 90% of American businesses are classified as small and employ 46% of private-sector workers. However, this survey alone may not fully encapsulate the manufacturing landscape. The potential for a slowdown in broader manufacturing activity, driven by factors such as rising costs and geopolitical uncertainties, could temper expectations. As we move into 2025, it's vital to keep a close eye on these indicators to gauge the health of the manufacturing sector and its implications for steel demand.
As previously mentioned, several trends are expected to influence the steel plate market. To stay informed on these topics and more, sign up to receive our monthly newsletter. It covers economic indicators and market trends relevant to the steel industry. As we navigate this evolving landscape, we at Leeco Steel remain committed to providing our customers with the insights and support they need to thrive in the steel industry. We appreciate your confidence in Leeco Steel as your steel provider, and we eagerly anticipate exploring these trends with you in the new year.