Record steel prices, pellet premiums follow strengthening steel demand

Higher steel prices and iron ore pellet demand since the fourth quarter followed stronger steel orders and consumption in developed economies, leading the World Steel Association to increase its 2021 steel demand estimates on April 15.

Steel-related industries rebounded quickly in Q3 2020, largely due to substantial fiscal stimulus measures and the unleashing of pent-up steel demand, leading to stronger demand forecasts.

Lead times at steel mills in Europe are stretching into Q3, with steel sales bookings at record prices, and that is supporting high-grade steel raw materials to maximize steel production, a senior steel group executive said.

Developed economies are now expected to see steel demand grow 8.2% to 371 million mt in 2021, worldsteel said in its latest Short Range Outlook report.

Even with the upgrade from a 363.5 million mt estimate for 2021 in the October SRO and further growth in 2022 to 386.4 million mt, developed steel demand would fall short of the 393.4 million mt in 2019, Worldsteel said.

Worldsteel acknowledged the ongoing pandemic effect on the global economy, with disruptions from waves of infections expected to fade.

Industry activity levels below the pre-pandemic level at the end of 2020 may improve, and eventually return to pre-pandemic growth after 2022.

Steel demand may be stronger still if raw materials supply improves to boost steel production and shipments. Some bottlenecks to steel capacity are easing, but with maintenance schedules and restart preparations.

MENA recovery

Worldsteel upgraded steel demand in the Middle East and North Africa region, which includes multiple DRI modules needing pellets.

A rise in oil prices helped the region’s steel demand to recover toward the end of 2020 and it was expected to “recover moderately with the resumption of infrastructure investments”, worldsteel said.

China’s steel demand is now expected to exceed 1.02 billion mt in 2021, up from the group’s 980 million mt October forecast.

Higher pellet demand has led premiums and prices to surge for Q2 from record low premiums in 2020. A shortfall of pellets is leading DR pellet plants to seek blast furnace grade and poorer quality substitutes, paying up to run operations at stable rates.

A March 31 fire at Rio Tinto’s Iron Ore Company of Canada was expected to disrupt iron ore pellet and high grade concentrate loadings and supplies available in Q2, with potential for a catch-up to shipments in the second half, market sources said.

Concerns around iron ore supplies and pellet feed qualities remain after Vale produced less pellets than estimated in 2020, forcing some plants to use more lump and lower-grade pellets at DRI plants as the market awaits Vale’s return toward pellet capacity.

Higher carbon permit prices have been supporting demand for pellets, in some cases in Europe to ensure surplus carbon requirements over free carbon allowances are minimized, and to meet sustainability and emissions reduction targets.

Met coke plants may be slow to ramp up, with stronger yields and coke qualities needed to boost steel utilization rates, according to industry sources.

Worldsteel’s latest forecasts, published in the semi-annual SRO, assumed the waves of COVID-19 infections will stabilize in Q2, and vaccinations will allow a gradual return to normality in major steel-using countries.

— Hector Forster