Steel Prices Likely to Fall in 2022 on Weak Chinese demand

Global steel prices are projected to fall in 2022, with a new outlook by financial information services company Fitch Solutions expecting the world prices to drop to $750 per ton this year.

Fitch Solutions, which predicted a price drop for the second half of 2021, expects the world steel prices to fall from an average of $950 per ton to $750 per ton in 2022, with the prices ultimately dropping to $535 per ton over 2023-2025.

“Our forecast for prices to start cooling in the second half of the year has played out, with European and Asian prices declining throughout the second half of 2021, while US steel prices have started to stabilise starting October from the exceptional rally since the fourth quarter 2020,” the company said.

According to Fitch Solutions, slowing Chinese domestic steel demand and rising market protectionism are expected to relax the market and drag prices lower in the medium term.

“We expect that a combination of slowing Chinese steel consumption growth and rising global steel market protectionism prompting greater production in affected countries to loosen the market and drag prices lower,” the firm said.

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Demand for steel in China is projected to fall in the coming decade compared to the previous one as the Asian nation shifts its economy away from heavy industry to the services sector. This will pull down the steel prices in China and globally.

Fitch Solutions expects China’s steel demand growth from the construction industry to have peaked in the first six months of 2021.

Government stimulus

Although current projects and new public infrastructure schemes will continue to lift steel demand over 2022-2025, Fitch does not expect the strong demand impact that resulted from a speeding up of government stimulus since April 2020 to support China’s post-Covid recovery to return this year onwards.

“With major construction projects reaching completion and the pipeline of new projects thinning with (China) focusing on tightening credit lines, Chinese steel demand from the construction sector is likely to weaken,” Fitch said.

In contrast to China, Fitch Solutions is more upbeat in its forecast for steel demand in the United States and Europe.

Joe Biden’s infrastructure plan

President Joe Biden’s eight-year infrastructure plan that will involve the erection of mega public infrastructure such as highways, pipelines, ports, and bridges will support U.S. domestic steel demand for nearly a decade.

However, this demand is not big enough to spark global price inflation.

In Europe, Fitch expects consumers – especially electronic firms and automakers – to prefer local steel compared to imported one to lower their carbon emissions.

European steel is largely a low-carbon commodity produced at electric arc furnaces using scrap metal, while Chinese steel is a high-carbon product produced at blast furnaces that require coking coal and iron ore.

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