S&P Global Market IntelligenceDiscover more about S&P Global’s offerings
Investor RelationsProduct Login
Obtain the data you need to make the most informed decisions by accessing our extensive portfolio of information, analytics, and expertise. Sign in to the product or service center of your choice.Customer Logins
With steel prices hitting record highs, and supplies being tight in many regions, our Director of Pricing & Purchasing, John Anton, sits with us to discuss the continued mismatch between demand recovery and production restarts. John discusses the impacts to construction and manufacturing with delays, deferred projects, and in many cases missed budgets. What lies ahead? Is there any good news? Join us and get the full picture.
SUBSCRIBE: Apple | Stitcher | Spotify | RSS | Google Play
Female Speaker: You are listening to the economics and country risk podcast from S&P Global in each episode our experts will provide you with a clear 360% perspective on what's happening around the world.
Whitney Jarrell: Hi my name is Whitney Jarrell, I am Director of Marketing with the Economics and Country Risk team. And if you listen to the podcast my guest today will sound very familiar. I am joined by Mister John Anton director on the pricing and purchasing team. John today it's your turn in the hot seat, we will be talking what's going on in the steel market: how did we get here, the impact and the road ahead and what's in store. So, John let's jump right in, what's the steel market look like as we start to see the first glimpses of spring?
John Anton: Whitney thanks for having me on, it is a little bit different being the interviewee rather than the master of ceremonies, but it's very timely because steel is probably the worst of all industrial materials, prices are extremely high, supply is extremely tight that could barely be worse from a buyer's point of view.
Whitney Jarrell: This is not the first time you've mentioned, members of the pricing and purchasing team have even referenced it in their areas of expertise as well. Specifically, how did the steel market get here?
John Anton: Well basically what happened was there was a mismatch between supply and demand response to COVID recovery, that demand came back very quickly, but steel production did not really come back until late 2020 in Europe or not until early 2021 in the United States. There is a 6 month a mismatch between the return in auto production and return in the mills that make steel for automotive. For 6 months you had furnaces offline even as automotive was going strong. You had appliances for passing pre-COVID level and using steel while the grades are still they need those furnaces were off light. So it's not like there's a shortage of steelmaking capacity what happened was a capacity just sat idle even as people were buying the type of steel. So first you draw down inventory and then you run out.
Whitney Jarrell: Are there any noticeable consequences of the high prices and supply disruptions?
John Anton: Yes, I said we ran out, we are old allocation which is still industry term for rationing quite simply you can't get steel for some grades particularly automotive grade sheet. And therefore, we have had production slowdowns and actually stoppages at some of the automakers. We have had parts makers turn away business because they cannot get steel. We have had appliance makers who can actually because people are trying to remodel their house, their business could increase but they cannot meet it because they cannot get steel. So you have had businesses not be able to do business and you had employees not be given all the ships they could be given or even sometimes rehired we do not have steel. And moreover, if someone set a budget based on normal pricing which would be somewhere between 600-800$ per ton and now they are paying $1300 a ton their budget has been completely blown up. And so it is hurting business, it is hurting them in a tangible way, to not be able to get the steel they need at a price of this anywhere near normal.
Whitney Jarrell: What about relief going forward when you think things are going to start to get better?
John Anton: Well the good news is production is back online. Europe did not do anything from April until August, and then in September and October they came roaring back. And Europe has been at full production since October. The first thing that happens is you replenish inventory but still will be getting out into the market. The US did not really start reacting until December and January but by January the US was finally back up to pre-COVID level. Now remember demand was back in July. So there's still a mismatch all the inventory was sucked out of the system, it will take time to replenish, which you are also seeing imports coming in. US prices are far higher than 25% above the rest of the world. They are over 50% higher than Europe and almost 80% higher than China. And so a 25% tariff people can handle and imports are flowing. This also goes for Europe second to North America, Europe is the highest in the world and Europe is also looking toward imports. And that will help supply there. So the high cost regions are buying from other regions to improve supply plus productions back and I want to return to something I have said before, demand does not exceed pre-COVID level. Demand is less than it was in 2019. Prices are more than double 2019 level total demand is less, supply will make these prices go away, but it won't happen immediately. It starts in the second quarter and really that's when you start to see inventory get replenished, that's when he starts the lead times get better, that's when he starts the rationing allocation start to be alleviated. So the second quarter is when things start turning, it would have been sooner makes up for you had extreme cold weather in the United States, which prevented scrap collection, it prevented still movement you have logistical disruption because of the extreme cold weather in February. They had weathered just as cold in Europe which disrupted their logistics as well and it delayed everything for 3 to 6 weeks. But weather has warmed up, better times are coming and still will get better. The second quarters when things start turning by the third and fourth quarter prices should be coming back down and remember the norm in the United States it's 600 to 800$ for hot rolled coil and we are over 1300 that is not normal and it will not persist.
Whitney Jarrell: You know John you and I can't seem to have a conversation without mentioning supply chain which I think is very natural in terms of the topic. But as we have listeners across industries and across roles within those industries looking at steel and probably dealing with the changes in the supply chain that are happening today. What else should we keep our eyes on?
John Anton: Yes, we are always talking about the supply chain because it's very important, prices it there but if you can't get it that's really what's disrupting to a steel buyer. The biggest factor that could disrupt supply right now is the potential failure of liberty steel. Now I want to make it very clear we are not saying they would definitely go out of business, but they are in very severe cash flow problem. One of the biggest lenders has cut off all financing to them, so they are looking for alternate sources for financing, they are asking for buyers to pay them up front and giving them discounts if they well. Suppliers of scrap and iron ore and electricity will not give them any materials on credit they're demanding cash on delivery, which means I do not expect the company to necessarily make good on debt. Liberty steel is not a huge steel maker but it is sizeable capacity is about 30 million tons a year global productions about 2 billion, so in and of itself it would not turn the market, but in several niche products it would be very important. The top risk is to Europe for specialty steel particularly out of Britain, but it does furnish defense contractors, it furnishes auto companies, it furnishes the energy market out of continental Europe. They make pipe that is very important offshore energy. They also make sheet steel that is very important to the European, central European automotive industry. And in North America they have a lot of the wire rod capacity, which is for if you're making wire or buying wire that is something to be very careful of. And we do not know what will happen there but if it is disrupted wire rod is not scarce globally, but any buyer would have to go and find a foreign source because our domestic source might not be in business. So, it would be a temporary delay and a disruption to your buying patterns. Liberty needs an infusion; liberty may well get one from governments. The steel they make in Europe is so important to defense contractors that were not sure that it would be okay to use a term, but I think it's the best one allowed to fail. However, we don't know and that could happen it is something that every buyer who has exposure to liberty should be looking at.
Whitney Jarrell: John is there anything else still buyers can look out for or read up on?
John Anton: A completely different thing that buyers should be watching for is that several suppliers have announced that they are going to do maintenance over the summer. Now with steel prices is high it's a very curious time to be doing maintenance. When you can sell steel at record high pricing, we think this maintenance may be deferred until prices come down lower towards the end of the year. But if it does happen you should be looking to your supplier to make sure that they are not going to be making less steel and have a hard time supplying you. Just as the market starts getting better, just as supply is improving your supplier decides to shut down for 3 weeks or a month. Not a good thing and it is something given how tight markets are. It would actually have an impact. If markets were lose and inventory was very strong it might be a who cares. Right now, we do not need anything to make that market tight or to keep it tighter than it otherwise should be. So, these are things that will be monitoring things will look at the news stories I'd be looking at, if I was a steel buyer. I would search fairly frequently all maintenance and the name of your steel mill. I would search on liberty and steel these are the stories that we monitor these are the stories that a buyer might want to take a look at. Again, I want to reiterate neither of the things I have just mentioned are enough to derail the improvement we see coming. They might slow it down; they might delay it a little bit. But these are not things that change our basic story that the second half of the year should be far better than the first half.
Whitney Jarrell: Well you know I love a good headline John I think you've given us many in today's episode. So thank you. For today steel update and as always you given our listeners a lot to think about if they consider steel amongst the atmosphere of surging commodity prices until next time.
Female Speaker: Thank you for listening to the economics and country risk podcast from S&P Global. Connect with us on Twitter at economics risk and don't forget to sign up for our newsletter at IHSMarkit.com/ECR