No matter whether you are project managing a huge commercial build or you’re an independent building firm working on residential developments and extensions, you will no doubt be aware of the dramatic price fluctuations affecting steel prices currently. With all parts of the steel industry affected, including the steel reinforcement products we supply, now is not the easiest time to be in charge of costings, budgets or project planning within the construction industry. In this blog post, we take a look at what is happening around the world to cause such extreme market conditions, and we then go on to consider the short- and mid-term outlook for steel prices in the UK.
Covid-19’s Relentless Impact
It would obviously be rather foolish to start a discussion on steel prices in 2021 without mentioning the global Coronavirus pandemic. Throughout much of 2020 and continuing to the current time, virtually every commercial sector has experienced long delays in supply and significant price fluctuations for raw materials and manufactured goods. Lockdowns have varied from country to country throughout the pandemic, but the net effect is that goods and raw materials simply haven’t been able to flow around the world in the way that we all need them to. Complete lockdowns have seen ports stand empty for weeks or even months, and when restrictions have eased, staff off sick with Covid-19 combined with minimal staffing at ports and freight hubs have meant that the volumes of freight being loaded onto container ships has been nowhere near normal levels. Had that situation lasted for just a short period, things would have probably evened out by now, and we would likely not be seeing the wild price hikes that we are currently experiencing. However, the situation has been going on now for 16 months, so the effects are snowballing all the time.
Add to this the fact that demand has actually soared during the pandemic, and things don’t get any better. The UK’s furlough scheme and generous help packages have meant that many people, stuck at home with nothing to do, have decided to embark on home extensions and other projects, putting additional strain on the construction materials market. Whilst most areas of the economy have taken a beating throughout the last year and a half, DIY is one sector that has very definitely had a turbo-boost during the Coronavirus pandemic.
A Cross-Sector Problem
It’s worth pointing out at this point that it isn’t just the steel industry that is affected by these global supply problems and price increases – as an example, timber prices are also exploding and lead times for many timber products have gone from 2-3 weeks to 4-6 months or even longer. Poured concrete is also suffering a similar fate, in part because of the pandemic, but also because of the huge demands that HS2 and other UK infrastructure projects are currently making on the industry.
Drilling down into the Covid-19 impact on steel prices, and on the wider construction and manufacturing sectors, we can start to see why the effects are being felt so deeply and for so long. As most countries have now eased their restrictions significantly, and many Western countries are pushing forwards aggressively with their vaccination programs, you could be forgiven for thinking that things should be back to normal by now, when it comes to the flow of goods and materials. Sadly that isn’t the case, as supply chains have been left with ships and containers in the wrong places, with backlogs of goods standing at ports throughout the world, waiting for clearance or waiting for ships to arrive to take them onwards to their final destination. With so many protracted delays over the months, many orders have simply been cancelled, leaving producers with the headache of being unable to fulfil fresh orders whilst old stock is just sitting in shipping ports with nowhere to go. The blockage of the Suez Canal a few months ago set back what little progress had been made in getting things back on track, and major Covid crises in places where vaccination isn’t progressing so quickly, such as Brazil and India, are continuing to pile the pressure on.
Does China Have The Answer?
Why can’t China simply ramp up production and exports? This is something we hear all the time in discussions about supply and price volatility, and it’s a hard one to answer. In theory, increased output from China would actually be welcomed by many, for once, in order to help ease global supply issues. Yet, there does seem to be a very definite hesitation on the part of China at this point in time, and the reasons for this remain unclear. Perhaps there are localised Covid-19 outbreaks affecting Chinese production or ports, and the West isn’t hearing about them, or perhaps China is looking to the mid-term, and worrying about the global economy and the impact of governments around the world spending so much on support packages and stimulus deals – all of which needs to be paid for eventually.
When Will Steel Prices Stabilise?
From the UK’s perspective, there is perhaps a little relief in sight, as the government is currently considering scrapping the steel import limits and tariffs it inherited from the EU, which imposed them in 2019 to protect against cheap imports flooding the European market after Donald Trump introduced hefty tariffs in the US. If the UK does scrap these tariffs, more steel should flow into the country, putting some downward pressure on prices. Of course, this may not be welcome news for UK steel production, as this country generally has higher production and energy costs than many others, such as Turkey, for example. But in terms of steel coming in to help ease the supply issues on manufactured products such as steel reinforcement meshes and associated items, this could bring some easing on prices.
It would be reckless to try to predict with any certainty or authority what will happen to steel prices in the short- or medium-term, and the outlook certainly remains choppy. With vaccination programs accelerating, and more talk of putting the virus behind us, we can only hope that stability is on the way. In the meantime, we will work hard to bring you the best possible prices in these uncertain times. We’ll also bring you more news on steel prices as things develop.