Finished steel prices in the US are expected to trend downward in 2022, according to IHS Markit Director John Anton, which is good for buyers despite certain dangers of disruption ahead. At SteelOrbis’ annual New Horizons Conference on Wednesday, Anton said falling prices are lagging behind Europe, but when all is said and done, US steel prices will still be higher than pre-pandemic levels.
Looking globally, steel supply is being “squeezed” by production cuts in China and potential cuts in Europe, Anton said. China is serious about decreasing pollution, especially ahead of the Winter Olympics in Beijing early next year. China reportedly is eyeing a steel production cut from 1.2 billion tons a year to 1 billion tons, which will significantly decline the country’s current levels of excess steel. Anton said the first step in curbing production is shifting away from the export market, and China might even impose a tax on exports, after eliminating the 13 percent rebate on VAT. Anton noted the production cuts and clean energy concerns in China will likely be permanent going forward.
In Europe, prices have been falling and demand has been slowing, however tighter supply could balance that out if energy shortages and resulting spikes in power prices lead to production declines.
As for the US, prices spiked during the pandemic due to severe production cuts, but now that capacity levels are more or less back to normal, prices are forecasted to decline despite high demand. Prices for flat steel products in the US surged much higher than long products, and Anton attributed the discrepancy to how closely long product prices follow scrap prices. As such, while flat steel products are forecasted to experience a sharp drop in the coming year, long products will experience a much softer decline, Anton said.
Speaking about the recently-passed infrastructure bill in the US, Anton said it won’t affect the US steel market until 2023 at the earliest. Next year, projects will go through the planning stages, with groundbreaking of major infrastructure projects in 2023. Maximum spending on infrastructure will happen between 2025-2027, Anton said, before declining for the remainder of the bill’s 10-year tenure. Anton pointed out that all infrastructure-funded projects are required to use US “melted and poured” steel, which means re-rollers can’t use imported slab. However, Anton said there will be plenty of private construction projects still ongoing that will be able to use imports, which is a boon for buyers considering the recent US-EU tariff-rate quota deal.
Under the new system that takes effect as of Jan. 1, there will be no Section 232 tariff applied to the average tonnage amounts from Europe in 2015-2017, which will favor Germany and the Netherlands when it comes to flat products, considering those countries had the highest flats exports to the US during that period. Any tonnage sent above those historical levels will be subject to the 25 percent tariff. Anton said this will lead to approximately 3.3 million tons of tariff-free imports, which is only about 3 percent of the US’ annual apparent consumption of 110-120 million tons. As for prices, both import and domestic prices will likely decline, but as Anton said, they were declining already so it won’t affect US mill outlooks too much. The main winners of the new deal, according to Anton, will be US buyers and EU mills.