2021 was a year like no other. Amid the rapid global spread of Covid-19 in 2020, the lockdowns that followed and the fear and uncertainty that gripped the world, few would have imagined that economic activity would rebound with so much force, so rapidly. Mankind developed vaccines and quickly adapted to life with the virus, but, after significantly scaling back operations in the first half of 2020, industry struggled to ramp up supply to match the demand boom that came next.
The year was one of two halves.
The first was dominated by the shortfall in supply, which sent steel prices spiralling globally. China, whose demand had single-handedly propped up the steel market for much of 2020, saw crude steel production rising rapidly despite attempts to curb it, while end-user demand, more importantly, soared even higher. Gone was the earlier notion that Chinese demand would stabilise at lower levels amid the country’s shift to consumption-led growth. This was coupled with still limited Chinese steel exports, as the government cancelled export tax rebates on most steel products in May.
European hot rolled coil prices in April meanwhile reached the previously mythical level of €1,000/tonne as mills struggled to meet demand, hiking prices on a weekly basis. This was despite semiconductor shortages forcing increasingly more carmakers to curb production and therefore not take up the procurement of automotive steel stipulated in their annual contracts.
May was a month for record prices, with the KORE 62% Fe index surging to an all-time high of $226.07/tonne cfr China on 10 May, driven by speculation, before China’s government intervened to cool the market. HMS 1&2 80:20 scrap surpassed $500/t cfr Turkey on 11 May for the first time in ten years, later peaking at $512.5/t. CIS billet surged to $715/t fob Black Sea on 10 May.
The headlines that month were dominated by expectations China would implement an export tax on HRC, as part of its push to limit exports to high value-added products. To this day, however, no tax has been implemented, and it looks increasingly unlikely that this will happen.
Given the supply shortages gripping Europe, many expected the European Commission to revoke or relax safeguard measures at the end of their three-year tenure in June. However, much to the delight of EU steelmakers and the dismay of end users, duties were extended for another three years. The swearing in of Joe Biden as US President in January, meanwhile, did nothing to change Section 232 measures, convincing steel market participants that protectionism was here to stay.
Summer was a turning point, as China implemented environmental restrictions to curb steel production, ordering steelmakers to ensure 2021 production remains at or below 2020 levels. The KORE 62% Fe index slipped below $200/t at the end of July and has not returned to this level since. A new surge in Covid-19 cases in Asia, meanwhile, slashed rebar demand on the continent and kept Turkish mills out of the market in August, hampering scrap price growth.
Rather than the typical post-summer steel demand rebound, global markets remained subdued in September, as soaring input costs began to seriously pressure the margins of steelmakers in regions such as Europe and Turkey, with some mills announcing they would need to curb production due to costlier energy, while others implemented energy surcharges. Moreover, concerns over the collapse of Evergrande and a resulting debt contagion stifled China’s real estate market. (Read related article here)
There was brief hope that demand would rebound after China’s Golden Week holiday in October, but this never materialised. Instead, Chinese prices began to collapse on weak Chinese steel demand, real estate activity and fixed asset investment. KORE 62% Fe fell to $86.79/t on 15 November – the lowest level since May 2020.
At the end of October, the US and EU signed a new trade deal to allow over 4 million tonnes/year of EU steel to enter the US duty free. This sent other US allies, such as Japan, Korea and the UK, scrambling to negotiate similar agreements with the world’s largest economy. Premium coking coal prices, meanwhile, peaked at an all-time high exceeding $410/t fob Australia at the beginning of that month. In the US, HRC finally joined the downward trend in the rest of the world and started to come off in the second half of October and into November after peaking at an astonishing $1,960/short ton or $2,160/metric tonne.
Costlier inputs have continued to squeeze Turkish mills throughout November and December, pricing them out of Asian rebar markets, a situation that has been successfully exploited by supplier mills in the Middle East, a market that still a decade ago was heavily reliant on imports. The lira recording repeated all-time record lows in recent weeks has meanwhile hampered business in the Turkish domestic market. Turkish mills have consequently substantially reduced scrap purchases, which has seen prices of the feedstock come off in December after they had remained stubbornly high even amid iron ore dropping after the summer.
Amid these market developments, the global steel industry rapidly accelerated the decarbonisation process in 2021, as existing steelmakers announced ambitious low-carbon upgrades and new “green” steelmaking investments were established, most notably in Europe. Hydrogen has become the new buzz word of the day – this abundant gas is expected to fuel not just steel but industrial processes all over the world in the coming decades. The EU is encouraging the process with its Emissions Trading System, which penalises high carbon emitters. EU carbon permit prices have reached record levels, exceeding €80/t in December versus below €35/t at the start of the year. Until new technology is sufficiently developed, the push towards green steelmaking will increase production costs and support higher steel prices in some regions. The increased use in steelmaking of scrap as an immediate carbon reduction method will put pressure on the feedstock’s availability, again supporting prices. These trends are likely to become more apparent in 2022.
Another factor to watch will be how the US-EU trade pact affects each of the markets involved.
- What products will be imported into the US from the EU, from which producers and in what tonnages, and will this soften US domestic prices, which are considered by many as unsustainable?
- What other countries will the US agree trade deals with and will this create a closed market of certain regions that excludes others?
- What will be the outcome of the EU’s latest safeguard review, due for completion next June?
- To what extent will EU and US steel demand benefit from the Next Generation EU recovery instrument and US infrastructure bill respectively?
- With the Democrats expected to lose next year’s mid-term elections and a turbulent political year anticipated in the country, how will the steel industry be impacted?
- When will semiconductor shortages ease and automotive production rebound?
- Will manganese and graphite electrode shortages resurface to the detriment of steelmakers?
- What will happen to the Chinese real estate market in 2022 and what economic consequences will this have globally?
- What will happen to the steel surplus resulting from reduced Chinese steel demand next year?
Kallanish’s global team of journalists will bring you the answer to these questions and more, with the latest industry developments reported as and when they happen.
In the meantime, I wish you all a peaceful and reflective holiday period, and a Happy New Year.
Sincerely, Adam Smith