Last month, MetalMiner reported that the cost of stainless steel remained strong amid strong demand and increased production. However, we have identified some cracks in what might otherwise look like a solid recovery. As we move from T2 to T3, some of these cracks have grown significantly.
Weak demand in China affecting the cost of stainless steel
According to a recent report from the Shanghai Metals Market, prices are falling due to weak demand. Although factories are optimistic that the third quarter will bring more orders, warrants remain down so far. As stated in the report, “In the spot market, the market does not know when the decline in stainless steel prices will end. Traders mostly have a pessimistic outlook for the recovery in consumption.
“Pessimism” seems to be the watchword when it comes to the Chinese economy and the cost of stainless steel. President Xi Jinping has not been shy about using his government to spur growth. Even so, reports from organizations like Fortune believe the stimulus package remains too weak to save the struggling economy.
Overall, the company’s strict adherence to zero COVID initiatives and the resulting crippling lockdowns are just a big drag on the economy. Combine that with the worst housing market decline on record, and it’s no surprise that steel costs are in jeopardy. Ultimately, no offer can make up for the lack of buyers.
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Meanwhile, EU steelmakers talk rebound
The European stainless steel market seems to benefit from all the optimism that China lacks. Recent estimates published in S&P Global predict a significant rebound in Q3 and Q4. Specifically, experts see the market rebounding almost to pre-COVID levels. This would equate to approximately 1.2 million tonnes of long finished for 2022. This represents a significant improvement from the 1.05 million tonnes produced in 2021.
According to Emilio Giacomazzi, Sales Manager at Cogne Acciai Speciali in Italy, “We have seen a surge in demand for stainless steel after the COVID pandemic. Since May, the market has been on pause as inventories are high… but overall demand is good. Although commodity prices (like everything else) are on the rise, sectors like automotive, oil, and aerospace are supporting prices with demand.
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In the United States, the expansion of oil and gas could further stimulate demand for steel
The oil and gas industry remains one of the largest consumers of stainless steel products. The production of pipes, pumps, tanks and valves depends on stainless steel. Just last week, Targa Resources signed a multi-billion dollar deal OK to buy operations in the Permian Basin. Lucid Energy previously owned the operation, but Targa is committed to significantly expanding its regional presence. If that happens, the 600,000 acres will require a lot of stainless steel materials.
While the public clash between the Biden administration and oil and gas producers is likely to continue, things are a little different behind the scenes. Recently, industry executives met with Energy Secretary Jennifer Granholm in what was described as a “productive” meeting.
According to the American Petroleum Institute, the discussion sends “a positive signal to the market that the United States is committed to investing in a strong U.S. refining industry for the long term and to aligning policies to reflect that commitment.” If true, it could create a space where green energy and traditional energy can coexist peacefully.
When will the stainless steel rally end?
Many industry insiders have already released reports expecting steel prices to pull back over the next few months. It is true that world prices, which have been skyrocketing since October 2020, seem to have peaked. The supply is back, and the demand seems to be shaky from one country to another. Yet only time will tell if (and where) steel prices will find new support.
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