What is causing the rise in steel prices?

[edit] Introduction

The unusual circumstances that have hit the world over the last few years have meant that many prices have started to rise, and that includes the price of steel. Since the beginning of the COVID-19 pandemic in 2020, steel prices have rocketed and demand is at an all-time high, but why is this happening and what does it mean for the future?

It is easy to simply blame the pandemic for the cost of steel rising in such a dramatic way, but this is not the only factor at play. Whilst other materials such as lumber have been through similar patterns of demand, the prices have changed as the world returns to normal. This is not a trend that has been seen with steel though, and many manufacturers are now becoming concerned that this price hike might be here to stay.

[edit] Steel prices

Steel is a commodity that is always in demand, and as such, it has always commanded a healthy price. However, when we see changes in supply for the raw materials used in steel, it becomes clear that the price will be on the increase. Since the start of 2020, many different factors have combined to mean that the cost of production has risen, and demand has outstripped supply to create an unusual set of circumstances that could not be predicted.

As the world has begun to reopen, that home-based demand has pulled back, but in industrial settings it is still in high demand. Steel heavy industries such as oil and gas are seeing huge demand thanks to the extra heating costs of people working from home, a return to air travel and more daily commutes taking place.

Many construction projects which had been put on hold also swung back into action, adding to the demand even further as they rush to catch up with the developments that had been left waiting. As people scramble for material for all sorts of uses, the cost of steel is being driven higher and higher.

[edit] Supply from China

China is currently the world’s largest steel producer, and its own lockdowns have created drastic supply issues across the globe. With many Chinese steel mills either closed down or working at reduced capacity, the backlog became clear very quickly.

Much of the demand for stainless steel has initially come from Asian countries but this has now spread further afield. The rising cost of iron ore has meant that steel mills are not enjoying higher profits and this is only serving to push the price of what they produce higher.

[edit] Other shortages

This is not the only reason for the rise in steel prices, as global supply chains are creating their own issue. A microchip shortage is holding back car production, but it is likely that when that bottle is uncorked, the demand for steel will be even higher as car manufacturers begin to play catch-up and become desperate to ramp up their efforts. Freight shortages brought on by Brexit and the pandemic have also increased demand and therefore prices as well, as shifting the raw materials as well as the finished product has now also become a more costly business.

Car manufacturers are also playing another role thanks to their demand for nickel. This is something which is being increasingly used in electric vehicle batteries, and with demand for these cars increasing day by day, it is no surprise that rising prices of nickel is also being seen. As nickel is one of the key components of stainless steel it stands to reason that this is another contributing factor to the price rises.

In this country, we have seen plenty of examples of panic buying, but it seems that many industries have not learnt from the queues at petrol stations and empty shelves where toilet paper once stood. The lower availability of steel has meant that many companies are now stocking up on whatever they can get their hands on which once again reduces availability for others and drives prices even further upwards.

[edit] What does the future hold?

It is predicted that steel prices will eventually fall back to more sensible levels, thanks in part to the softening of input costs, iron ore and increased competition from cheaper imports. However, with demand for electric vehicles only set to get bigger, the price of nickel is likely to continue to increase. This is likely to have a long-term impact on steel prices which means that we might not see them return to anything that resembles what we were used to.

The predicted recovery of the global economy will help, and construction is thought to be one of the most powerful sectors behind this. Recently, steel mills appear to have been filling up orders, and there is a sense that normal production levels are set to return in the near future. However, with a lot of catching up to do, steel prices are expected to remain high for a while yet.

Steel is a material that is in demand across the world and in a vast number of industries. It is hard to see a future where it is not in demand and so it is likely to take time for production levels to return to what they once were and clear the backlog of orders. Once this does start to take shape, we are likely to see a more true reflection of the price when the cost of raw materials can be taken seriously and demand becomes something more recognisable.

--Newgate 16:12, 29 Nov 2021 (BST)