During the first half of 2023, many of us were uncertain as to which direction the steel market would turn amid economic uncertainty and softening manufacturing conditions.

Now that we look ahead to the remainder of the year, it appears that this uncertainty will remain in place following what has been a remarkably resilient first half in the plate market. I wanted to take a moment to share with you some of the market forces I am watching that could impact the steel market in Q3 and Q4 2023.

Steel Plate Pricing & Demand Outlooks for Q3 & Q4 2023

Steel plate prices, as measured by various industry indexes, were fairly strong during the first half of 2023. While some analysts predicted that plate prices would fall in early 2023, prices rose slightly in February 2023 following mill price increase announcements and gained additional momentum in April and May. Analysts expect prices to remain stable in the near term, but outlooks are more clouded near the end of 2023 due to economic uncertainty.

According to the World Steel Association’s April 2023 Short Range Outlook Report, we can expect to see global steel demand grow 2.3% year-over-year in 2023 to reach 1,822.3 Mt, up from 1,781.5 Mt in 2022. This marks an upgrade from October 2022’s Short Range Outlook Report, which predicted that global steel demand would grow 1.0% in 2023.

World Steel’s report states that high interest rates and softening manufacturing activity will weigh on demand growth in the U.S. I am also watching these factors and will discuss them more later in this article.

Market Trends We Are Watching for the Remainder of 2023

Interest Rates & Fiscal Policy

Throughout the last year, the U.S. Federal Reserve enacted 10 consecutive interest rate increases, bringing the target interest rate to 5-5.25% in May 2023.

This latest rate increase drew concern from economists, but, in their May post-meeting statement, the Fed softened language regarding future monetary policy firming. In their June 2023 policy meeting, we saw the Fed hold interest rates as they evaluate market impacts from their previous rate increases.

The Fed has made it apparent that they are closely monitoring job data – such as unemployment and wage growth – along with the Consumer Price Index (CPI). While we saw larger-than-expected nonfarm payroll growth in May, the unemployment rate rose, and the pace of hourly wage growth slowed. We have also seen inflation cool over the last year, with the CPI falling to an annual rate of 4.9% in April 2023.

While the Fed held rates in June, analysts say that we cannot entirely rule out a rate increase in the future. Interestingly, the latest Fed surveys indicate another expected hike in July, with no cuts on the horizon for 2023.

Monetary policy has a significant impact on demand – and the overall economy – so this is an area I am closely watching for the remainder of the year.

Banking & Credit Climates

Rising interest rates have created tighter financial conditions for both businesses and individuals. We also saw three bank failures within the first half of 2023: Silicon Valley Bank (SVB), Signature Bank of New York and First Republic.

These bank failures, paired with elevated interest rates, contributed to U.S. banks losing $472 billion in deposits during Q1 2023, according to a quarterly report from the Federal Deposit Insurance Corporation (FDIC), but more significantly, created instability in the U.S. financing market.

Following the creation of this unstable environment, banks are working to regain stability by raising interest rates on deposits. This action will entice businesses and individuals to maintain or increase deposit balances in lieu of more risky investments in this uncertain environment. Maintaining or growing deposits is crucial for banks to reduce portfolio risk by avoiding a forced sale of longer-term treasuries that would create unnecessary losses if redeemed before maturity. Unfortunately for banks, this will put significant pressure on margins and will ultimately have a negative effect on their risk tolerance for new loans. In the end, tighter lending requirements coupled with higher financing costs from banks will make it more challenging for businesses to borrow.

This slowdown in spending could dampen business investments and overall demand, which is why this is an area I will monitor in the coming months.

Economic Uncertainty

Analysts have warned us since late 2022 that an economic slowdown is ahead.

During Q1 2023, U.S. GDP increased at an annual rate of 1.3%, according to the “second” estimate released by the Bureau of Economic Analysis. While still at a rate of growth, this marked a slowdown following a GDP growth rate of 2.6% in Q4 2022. Analysts say we can anticipate consumer spending – which was relatively strong in Q1 2023 – to pull back due to increasing doubt about economic outlooks and elevated interest rates.

Despite some signs of the economy losing steam, analysts are still unsure as to when we will see a full economic slowdown, as well as how long it would last. In fact, some analysts are raising their 2023 outlooks following stronger-than-expected economic data in the first half of the year.

In their April 2023 report, World Bank increased its global economic outlook to a 2.1% GDP growth rate, up from a 1.7% forecast issued in their January 2023 report. The U.S. GDP growth outlook increased to 1.1%, up from 0.5%. In IMF’s April 2023 report, global economic growth was forecasted at 2.8% while U.S. economic growth was forecasted at 1.6%.

Economic growth, whether global or domestic, has rippling effects on demand across all industries. We recently saw the euro zone enter a recession, as the 20-member bloc reported -0.1% GDP growth in Q1 2023. This is something that we expect to have a ripple effect across the globe, which is why I am monitoring economic data to gauge possible impacts on the steel industry.

Slowed Manufacturing Outlooks

Manufacturing is closely intertwined with the steel industry, making it extremely important to monitor production metrics and activity to gauge possible effects on steel demand and pricing.

Currently, we are seeing slowing manufacturing outlooks. ISM’s manufacturing PMI – which measures economic activity in the manufacturing sector – has contracted for seven consecutive months, reaching an index reading of 46.9 in May 2023.

Analysts say this contraction is due to businesses more carefully managing inventories in anticipation of a market slowdown, as well as weakening demand as spending shifts away from goods and to services. We can expect to see activity continue to slow through the remainder of 2023.

Monitoring Steel Market Trends

Monitoring market conditions and metrics that impact the steel industry is crucial to making strategic sourcing decisions, especially during times of economic uncertainty. However, knowing which metrics to monitor can be challenging, and it is time-consuming to determine what news matters most to your business’ bottom line.

To help keep customers informed about key market indicators, Leeco Steel publishes a monthly report that provides a high-level look at the news and metrics shaping the steel industry. Sign up via the button below to receive this report directly to your inbox each month.