2020 was a tumultuous and unpredictable year. The COVID-19 pandemic disrupted all major markets, including steel, and made the economy extremely volatile.
While we know COVID-19 will remain a challenge next year, I wanted to share some of the other trends and market factors that the Leeco Steel team will be monitoring to gauge 2021 steel plate pricing outlooks.
Here are some of the topics we are monitoring to better understand the 2021 steel market and best guide our customers.
Steel plate prices, represented by various industry indexes, were extremely volatile in 2020 amid the COVID-19 pandemic. We expect continued upward pressure on prices through at least Q1 of next year. However, the outlook for Q2 and beyond are a bit clouded at this point.
According to the World Steel Association’s latest Short Range Outlook report, released in October, we can expect to see steel demand to recover in 2021, increasing 4.1% year-over-year from 1,725.1 Mt to 1,795.1 Mt. However, industry experts say we cannot rule out a “W”-shaped market recovery, and it is unlikely that we will see demand make a full recovery to pre-pandemic levels next year.
China, which made a strong economic recovery this year, is predicted to see flat steel demand next year, compared to a growth rate of 8% in 2020. China’s steel market can greatly impact the global steel supply – and, therefore, steel prices – so it is important that we keep an eye on their forecast.
In North America, we should expect to see steel demand increase 6.7% year-over-year. However, as was the case in 2020, an increase in COVID-19 cases could dampen this outlook. If cases continue rising in the U.S. at the start of 2021, steel recovery could be softer in North America next year than predicted.
While sectors that are common end users of steel products, including construction, automotive and machinery, were generally less impacted by the pandemic than sectors like hospitality, we can expect these industries to recover at a slow pace next year as the overall economic outlook remains uncertain.
Raw material markets are something that we at Leeco closely follow, as the production and costs of these materials can directly influence steel plate prices.
Over the past six months of China’s recovery phase, demand for iron ore within the country sharply increased, which sent ore prices skyrocketing to what is now a 9-year high. Ore inventories in China are continuing to fall, however, so we will likely not see an end to the recent price surge anytime soon. This trend will put further additional pressure on world ore prices, and, consequently, we can expect even higher prices for finished steel products here in the U.S. in the near term.
We also saw ore prices create significant volatility within other raw material markets, when compared to 4-year historical averages. For example, depending on the grade and region, scrap typically trades at a ratio of approximately 3.3:1 vs. iron ore. As of mid-December, that ratio is only about 2.3:1. Slab, which typically trades at a ratio of 5.2:1 vs. iron ore, is trading at a ratio of 3.6:1.
These scrap and slab trade trends imply that the materials have room for price appreciations in the near term, which will put even more pressure on HRC and steel plate pricing as we enter 2021.
When president-elect Joe Biden takes office in January, all eyes will be on his administration’s plans for economic recovery from the COVID-19 pandemic.
We saw the beginnings of economic recovery in the second half of 2020, but still have a long way to go before achieving pre-COVID levels. In particular, the ISM manufacturing PMI reached and maintained a rate of expansion in June, and non-farm payrolls made gains after major losses in April.
Biden’s economic recovery plan, called “Build Back Better,” would call for $7 trillion worth of spending on initiatives such as infrastructure – including the creation of 10 million clean-energy jobs – housing, education, economic fairness and health care.
If passed, increased investment in infrastructure could boost demand for steel plate products used in those applications. The pace of economic recovery will also heavily influence the strength of the 2021 steel market. Our team will closely watch the development of economic recovery plans and policies next year to gauge the impact on the steel plate.
While trade policy was not stated as one of the administration’s top priorities, it is another area that we at Leeco will be carefully watching, as trade policy can impact raw material costs. Under President Trump’s administration, new trade tariffs and levies were added to Chinese goods, but it is unclear whether Biden would maintain or relax the current tariffs in place. Biden’s team stated they will review the tariffs upon entering office, potentially working with U.S. allies and partners, with a view toward developing a “common approach.”
Crude oil prices, which we saw plummet this year amid falling demand and price wars between Russia and Saudi Arabia, are expected to stabilize and rise in 2021, according to the U.S. Energy Information Administration (EIA).
In their Short-Term Energy Outlook report, the EIA stated that we can expect West Texas Intermediate 2021 crude oil prices to average $45.78 per barrel, up 3.5% from their previous forecast. We can also expect to see Brent 2021 crude oil prices to average $48.53 a barrel, up 4.2% from their previous forecast.
Similarly, Barclays kept its “above consensus” 2021 oil price forecasts amid predictions that the COVID-19 vaccine will boost demand in the second half of the year and OPEC will delay oil production increases. Barclays predicts that we will see the crude oil price of Brent average $53 a barrel in 2021, while West Texas Intermediate will average $50 a barrel.
Numerous manufacturers are tied to the oil and gas industry, which is why the Leeco team monitors news surrounding crude oil prices. Our team will continue monitoring these price forecasts as the year progresses to gauge the implications on these manufacturers.
Keeping up with the latest market trends is important, particularly during uncertain times, to ensure you make strategic steel plate procurement decisions for your company. However, it can be difficult to find the time to monitor and analyze all the economic indicators that influence the steel market.
To keep our customers informed, Leeco Steel publishes a monthly Steel Snapshot report, which contains a quick, high-level analysis at the news and indicators influencing the steel market, manufacturing, the economy and more. Sign up to receive the report below.