09 Mar THE IMPORTANCE OF STEEL
The star of the year 2021, the exponential rise in the price of steel
During a crisis, and more the current one that involves health and the economy, cyclical stocks are the ones that suffer the most uncontrolled variations and without prior warning. The large steel companies have held out on the Ibex 35 with strength but the evolution of the pandemic year has caused decreases in the stock of raw materials, which has a direct impact on demand, assuming exorbitant price increases that are difficult to assume for limited productions in the face of the drop in orders, since the population has limited movements and social relations.
Analysts have faith in the new year, as demand is likely to recover by the end of 2021 faster than production. But why is the price of steel going up without a deadline?
Broadly speaking, the determining factor of these movements in the price of steel is the reactivation of the domestic market of the United States and China. The slow recovery of the productive capacity of the steel sector worldwide is further slowed by the effects of the pandemic, which continues to influence the principles of supply and demand. We must remember that, during the first wave of Covid-19, the blast furnaces were forced to suspend a production capacity of about 31 million tons, according to UBS data. However, in September only 25% of this production was restarted.
It appears that the supply shortage will continue for a season, as the extra capacity of the blast furnaces that are once again operational will be offset by delayed maintenance work and decommissioning at many steel plants. In this way, it is essential to recover the production levels before the crisis, since the reduction in production will only drive up the price of steel and harm the processing industries.
In short, 2021 will have to be overcome by fighting the consequences of the pandemic for all sectors at the international level, which translate into market disruptions, caution against chinese policies and an uncontrolled peak in prices.