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EU-Metal

Steel demand collateral to Vehicle Demand

There’s no denying that the world has seen one of the biggest hits in decades, because of corona virus which has led to a severe impact on many business sectors.

One of those sectors includes the automotive industry, which took a huge hit during the pandemic. That said, the industry appears to be in recovery, and the future of the automotive industry is looking strong with cutting edge Electronic Vehicle (EV) Technology.

Initially, analysts predicted that it would take a long time for the industry to recover from such a huge impact of the pandemic and lockdown, but a bounce in the industry is visible and no one can deny it, and that means the steel industry will follow the same trend, as the demand of the steel is directly proportional to the demand in the automotive sector. But on the contrary, we cannot deny the fact that it will take years for the industries to resume the operations at the full capacity. But people are still willing to buy vehicles, and sales for vehicles and ultimately for steel are in an upward trend.

The reality is, if people buy vehicles, manufacturers will need to produce more, and eventually they’ll need different types of steel to meet consumer demand.

Vehicle Demand Post Pandemic

Without questions asked, it is clear that the demand in 2020 for vehicles is lower overall than that in 2019, but sales have increased for several consecutive months beginning in May worldwide, which has also increased the demand for the prime steel products. That’s a positive sign for the auto industry and the steel industry as well. As retail sales continue to increase, the demand for steel and steel parts will rise along with it.

Variable Steel Prices

As per the law of demand, when the demand is high, the price usually follows the increase, and this economic principle holds true, it holds true for the steel industry too. The Steel prices dropped off in

late February as the pandemic took the whole world for a toss and steel demand plummeted. The prices stayed lower than usual until June but slowly it began to increase as the world reopens after the end of lockdown.

Steel prices continued to increase and leveled off in August, but as the automotive industry continues to recover, steel prices should follow the suit.

Other factors

Steel prices depends not only the Automotive industry, but also on other factors too as there are many usages for steel. Given that, these are changing global times and it’s hard to predict the future price of steel, but it makes sense that as industries start to need steel for production, demand and prices will grow.

Steel Supply and Demand

The big giants of steel industry (steelmakers) are flexible and quick to adjust and adapt to the changing market conditions. This puts the steel industry at an advantage in meeting consumer demand.

But they also face a challenge as integrated mills use blast furnaces, and that typically causes a problem. Generally, when the steel factories shut down, it takes time to restart the blast furnaces and bring the factories back up to speed. But since vehicle demand is still down from 2019 and the other industries using the steel produces are still coping up with the pandemic changes, the demand is low for the prime steel, with low production low will be the secondary steel (which shares a good market space in third world and developing countries) as it is a by-product and if the steel production is done at a full capacity the producers and the mills will be at loss, and that is the reason why most of the producers and mills are not operating at a full capacity and hence there is a shortage of material which started to reflect since the beginning of May, 2020.

So, to conclude, if the trend continues, there may be a full recovery sooner than expected for all the industries circling Metal Industry.

What we think

We at EU Metal think that being a major consumer for steel, automotive industry is one of the key drivers impacting the production cycle.

We are optimistic that the demand will gradually increase for steel and with time the market situation will be back to normal as it was before the pandemic, the signs of which are already visible globally, however because of the shortage of production, it might take quite some time for the prices to stabilize.

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