Reduced global steel trade fuels upward price momentum

Traditional global steel trade patterns were severely disrupted over the past twelve months. The Covid-19 pandemic reduced demand and production in most nations. This resulted in the displacement in the location of vessels and containers when the market recovery occurred, in the second half of 2020.

Container costs escalated and now stand at extremely high levels. Bulk shipping rates also soared. Several customers have resorted to transporting steel they require by aircraft, as shortages in the market intensify.

Many steelmakers are concentrating on serving their local markets. With freight rates rising, mills have incurred additional costs to ship material – sometimes sustaining a loss on the volumes exported. Consequently, many sellers are now quoting on an FOB basis, with buyers responsible for organising and paying for the shipping of their orders.

The risk and costs involved make purchasing from overseas suppliers no longer viable for many Western customers. Companies, located in the EU, have the added uncertainty that the European Commission safeguard measures may continue, beyond June 30, 2021.

Export price offers from China, in particular, have increased substantially, this month. Uncertainty surrounding potential VAT rebate cuts is the main cause of the upward. Many steel market participants had expected an announcement of changes to the rebate system to have been made by April 10. Currently, confirmation of the adjustment is not available. A decision is now expected by the end of April, with any reductions in rebates to be applied from the beginning of May.

Many Chinese steelmakers rushed to export as many orders as they were able, prior to any possible amendments in the tax rates. This added to the spike in shipping costs. Freight prices, recently, appear to be cooling slightly. However, they are expected to remain elevated, in the short term.

The reduction in trade volumes is exacerbating the global supply shortage and fuelling the upward momentum in steel prices, worldwide. Potential exists for Indian export volumes to decrease further in the coming weeks and months, as a result of the escalating coronavirus situation in the country. Consequently, trade between East and West is expected to remain low. With no significant drop in demand anticipated in the short term, global steel prices are likely to rise further.