The state of steel – as hard as nails?
With the Trump tariffs now in effect – (+25% tariffs on steel and +10% tariffs on aluminium in case you somehow missed the news!) – despite a temporary reprieve for Canada, Mexico and the European Union, delaying the onset from March until the 31st of May – many are fearful of the effect that this will have on the fragile, but recovering British steel industry.
Just last week (7th June), UBS have forecast that the benchmark price of steel will drop by about $100 to around $450 per tonne by the end of the year. Despite a forecast fall of a fifth, it’s still likely to be 14% higher than 2017 (Source: General Steel).
The general assumption (and therefore fear) is that much of the steel that was destined for the U.S. will now end up dumped in the European markets, where prices are enjoying a decade-long high, and many are calling for the European Commission to intervene before this additional supply crashes prices in the common market.
So it’s all doom-and-gloom, right?
But this predicted fall in price, and general anxiety around the potential impact of Trump’s tariff shouldn’t be taken at face-value for two reasons.
The first is that global steel demand is rising year on year, with the strongest increase in demand coming from the Middle East, Africa and South America (Source: World Steel Organisation) – global demand is expected to outstrip supply for the first time since 2015.
The second is that, in the broader view, British exports of steel to the USA amount for a relatively small amount, just 7% of exports go to the US, according to UK Steel.
What’s more – the outlook for steel prices through 2018, to 2020 and beyond is positive, particularly from a British point of view, including post-Brexit. China has already been open in its intentions to reduce output by 20%, already announcing that it is well-ahead of schedule and cut-backs of 150 million tonnes could be completed in 2018, so we should see a natural correction of prices. In the short-term, prices that have fallen due to excess capacity, will return to expected levels given the cut on supply.
Final take? There is lots of opportunity!
The impact of Trump’s tariffs remains to be seen – it will help boost American domestic prices simply by limiting foreign supply, but domestic demand in the U.S. market is falling…
Trump’s tariffs have certainly reignited the global industry – and for some, it could be a case of out of the furnace, and into the fire.
Similarly, there’s going to be little appetite for US steel outside of the country, as tit-for-tat trade policies are expected to be announced, so if the U.S. supply isn’t also kept in check, then U.S prices could fall.