What are steel prices doing?
Arold Kanen: “Steel supply is gradually moving towards a normal level, price pressure remains volatile.”
Rising prices and a drop in raw material availability: these have been worrying times for the industry since the first half of 2021. In the metal industry, developments surrounding steel – for example – are closely monitored. What are steel prices doing? When will supply be back to normal? Read an expert’s view: Arold Kanen from MEKA Steel in Bladel.
MEKA Steel assists customers, including SixPointTwo, in the supply of steel sheets. “Our approach is contract-based. We do business directly with the steelworks. By anticipating market developments, we try to negotiate the most favourable conditions for our customers in terms of price and volume conditions for the required steel grade for a certain period of time.” MEKA Steel ignores the traditional trade channels – suppliers/wholesalers with their own inventory and agents. “They are supply-driven. Our work is demand-led: we act solely on the instruction of our customers.”
Operating in challenging times
Until the summer of 2021, the market was extremely volatile: in a short time, the steel price peaked several times at new heights. What could MEKA Steel do for customer during that time? “For example, we advised customers who prioritise securing production progress in the longer term as early as 2020 to reserve material in good time to cover the availability of their specific steel grade.” The right contract period was essential in this: “During periods of price rises, we try to obtain a contract at a competitive rate, for the longest possible period, and the largest possible volume.” This involved looking further ahead than usual: “At that time, we stipulated contracts with a scope of no less than 6 months for customers who would normally maintain a scope of 2 to 3 months. This could mean that the agreed price was higher than the average market price at the time of closing. However, because the steel price rocketed much higher afterwards, the contract price sat below the level if the market average over the contract period.” Like many other MEKA customers, SixPointTwo has secured a large part of its steel requirements for 2021.
Internal model
In order to offer customers the best possible service, MEKA Steel closely monitors market developments. “We don’t have a crystal ball. We can’t see what the steel price will be at a certain time”, Kanen explains. “What we can do, is identify trends for periods of 3 to 6 months.” To do so, MEKA Steel uses its own model with several variables that could affect the price. “These include the availability of raw materials, capacity at the steelworks, current and/or global events such as the COVID crisis, currency proportions, import/export restrictions, and the number of logistical movements between international regions.” Kanen compares it to a dashboard: “We can see the pointers for the different variables moving to red or green, giving us an indication of the price development and availability of steel over time. This means we are always ahead of the regular market. Depending on the customer’s specific needs, we can use our market knowledge to make suitable and distinctive (purchasing) contract proposals.”
Market overheating
How does Kanen view the situation in the steel market? “We have passed the low point of the COVID crisis. Steel production has restarted in all regions of the world. The regions are still mainly trying to meet the demand for steel in their own regional markets. This is troublesome in Europe, because a large part of the European demand for steel must be imported from other regions.”
There is an additional challenge: steelworks are up to more than 100% capacity for the whole of 2021. Demand from the metal industry, especially from the automotive, construction and mechanical engineering sectors, has been stagnant for long periods in 2020, but has started to catch up in 2021. Because steelworks had scaled down production, it took several months for capacity to be brought back to normal levels. All these factors have caused market overheating.”
Prospects?
Right now, many companies have secured and/or reserved their steel requirements for 2021. “It led to demand waning somewhat after the summer. This was also because a similar development manifested itself for other raw materials, such as chips, building materials, and oil. What’s more, various industries are still relying on government support, meaning that orders will also be moved to 2022. The waning demand means that the rise in prices in Europe is levelling off. As such, I don’t expect another huge price increase, not even in 2022.”
According to Kanen, the availability and throughput of steel could return to a somewhat normal level in 2022. “Where the lead time at steelworks is between 6 to 10 weeks in a normal market, we are currently still waiting 10 to 20 weeks for new production. Lead times are expected to get shorter during the course of 2022, but to be honest, it’s akin to reading tea leaves.”
Kanen predicts there will be a slow rise of steel availability, allowing the base price of steel to stabilise and possibly decrease over time. “This will initially become apparent with low-grade basic steel grades. However, as soon as more availability comes up in the subsequent steel processes, including galvanisation and pickling, the price pressure will increase further on all fronts. As long as the world market is still unbalanced, steel prices will remain very volatile. This could (still) create large price differences within steel categories. That is why it is important that chain partners – more now than ever before – continue the dialogue about demand and capacity, now with a short-term scope!”
SixPointTwo closely monitors the developments in the raw materials markets. Meka Steel is one of SixPointTwo’s three strategic partners. If you would like to find out more, please contact Willian van Eerd, willian.van.eerd@sixpointtwo.eu.