Moody’s has lowered its price assumptions for the next 12 months for steel and coking coal to reflect weakening demand resulting from the global economic slowdown.
The credit rating agency says that following their peaking in March/April and subsequent decline, steel prices could soften further yet remain above historical levels longer term for two reasons. These are increased demand for scrap and metallics as steel producers focus on reducing carbon emissions; and less competitive steel sector dynamics from consolidation in some regions.
Prices have come down as post-Russia invasion panic buying recedes, supply-chain disruptions reduce global demand, Covid-related lockdowns and weaker residential construction reduce consumption in China, and inflationary cost pressures and higher interest rates weigh on sentiment and economic growth, Moody’s observes.
The 12-month price assumption for Chinese domestic hot rolled coil have come down to $600/tonne from $750/t previously, while Brazilian HRC is at $800/t versus $1,000/t, European HRC at $750/t versus $1,100/t and US HRC at $800/t versus $1,150/t.
US prices could remain above historical levels because of sector consolidation and increased metallics demand. “Long product prices have held up better with more favourable supply and demand dynamics but are likely to weaken further on lower raw material prices and softening demand,” Moody’s says in a report sent to Kallanish.
In China, the property market slowdown has weakened demand for steel. This slowdown stems from regulatory tightening and property developers’ financial struggles, which have weakened homebuyers’ confidence.
In Europe, steel prices will likely continue to slide. Economic weakness, falling euro area manufacturing PMI readings and continued sluggish buying activity of distributors weigh on demand. In addition, energy cost inflation, fears over future energy supply and rising interest rates will dampen consumer sentiment and investment activity across many steel-consuming sectors such as construction or general engineering.
“While some steel producers might curtail production to adjust output to the lower demand, the recent resurgence in steel imports into the European Union (+19.5% year on year in the first five months of 2022) will likely continue to weigh on prices in the region,” Moody’s observes.
Economic growth in G-20 economies will decelerate to 2.5% in 2022 and 2.1% in 2023, from 5.9% in 2021. In China, growth will be 3.5% in 2022 and 4.8% in 2023, down sharply from 8.1% in 2021.
Adam Smith Poland