Hanoi Iron and Steel – (HSV) Steel prices have increased and decreased abnormally over the past year. The impact of the conflict and the situation in China has caused conventional measures to evaluate the steel market to no longer be accurate.
Steel prices have increased and decreased abnormally over the past year. MetalMiner's report points out all the different factors that contribute to this unpredictable development. And according to Oilprice, one of the most important factors for global steel supplies is the conflict between Russia and Ukraine.
The conflict passed the 5-month mark, steel supply decreased
Back on February 24, few analysts could have predicted the effects of the Russia-Ukraine conflict. The world has suffered many major impacts, especially in the economic field. From sanctions to pipeline issues, shipping is stalled. And one of the most affected items is steel.
Ukraine is the world's eighth largest producer and third largest exporter of steel. Iron ore and other mineral resources are also abundant in Ukraine's soil. As a result, when the conflict first took place, steel prices had a significant jump. For example, hot rolled coil (HRC) steel plate has increased from 974 USD/ton to 1185 USD/ton in just over a week. Rebar steel also reached 753 USD on March 7 after closing at 694 USD on the day the conflict began.
In April, Stanislav Zinchencko, CEO of Kyiv-based goods website GMK, commented on the issue. Specifically, he mentioned that the conflict has significantly affected the supply chain, causing 90% of steel production capacity to become inoperable. According to him, the conflict has reduced export opportunities due to the blockade of the Black Sea by Russian military ships.
"About a third of Ukraine's steel capacity was located in Mariupol – Azovstal and Ilyich. At that time, this was the hottest region of the conflict. This effect meant that production capacity remained an unpredictable issue," Zinhencko said.
A two-sided problem for global steel supplies
Responding to all difficulties, Ukraine continues to produce steel, but with lower capacity. Examples include Zaporizhstal, Ukraine's fourth largest steel producer, and Kamet Steel in Dnipro. To date, both facilities have seen little impact from the conflict. For that reason, they still produce as much as usual. In fact, in an effort to boost the country's economy, US President Joe Biden's administration lifted tariffs on Ukrainian steel exports in early May.
It's all focused on Ukraine, but it's important to remember that there are two sides to the issue. First, Russia is still the world's third largest steel exporter, exporting about 33.3 million tons in 2018. Second, within the framework of the sanctions package, the US and Europe banned steel imports from the country in an effort to deal an economic blow, limiting revenue for Moscow.
In addition, the unusual flow of cheap Russian products is roiling steel trade in Asia, weighing on prices and prompting a key producer in the region to warn of possible trade countermeasures.
China remains the biggest driving force for the steel industry
China is currently ambitious to increase its ability to control iron ore prices. According to Reuters, iron ore prices are fluctuating between optimism and pessimism about the economic prospects of the top importer - China. But in addition to short-term fluctuations, long-term uncertainties are emerging.
China is promoting a plan to centralize iron ore purchasing activities, in which state-owned steel mills are creating a new enterprise to enhance price bargaining power.
This is not the first time China, which buys about 70% of its iron ore by sea, has tried to expand more control of the iron ore market. This makes the relationship between Chinese operators and steel mills more intense as the two cannot find common ground on prices.
In addition, the Chinese government said it would support real estate businesses by offering a loan package of 1,000 billion yuan (148.3 billion USD) for stalled real estate projects. The Chinese real estate industry has recently recorded many businesses in debt and has become an economic burden for the country. Most recently, many home buyers in the world's most populous country refused to pay mortgages to buy homes on unfinished projects. Immediately after this information, steel prices in this country increased to the highest in nearly 3 weeks.
China's construction industry has been contracting for years now, weakening demand for homemade and imported steel goods, and is sitting on huge metal inventories. It is known that this country currently produces about 56% of the world's crude steel.
And this is where all the factors come together – and the problem of conflict affecting trade is so large, the usual measures of measuring the steel market are no longer accurate. According to Oilprice, the steel market seems to have moved away from predictability based on traditional supply and demand factors. Instead, economists are rushing to produce new models to better reflect prices by 2022.