Steel prices to keep rising on industrial rebound; margins soft

LONDON: Steel prices are set to keep rising in coming months as economies recover and demand picks up after being hit by the coronavirus pandemic.

Many steel mills are resuming operations after being suspended due to COVID-19, but companies will only benefit modestly due to higher costs.

"In China underlying demand remains exceptionally strong, even though we're past peak growth," said analyst Serafino Capoferri at Macquarie in London.

"The rest of the world is picking up after a horrendous Q2 and Q3, and now we're seeing steel prices recovering pretty strongly across all regions... I think they will continue to rise."

Prices of hot rolled coil steel, used in the manufacturing sector, have shot up 37% since April in China, the world's biggest steel market and the first country to recover from the pandemic.

Prices in Europe and the United States have jumped over the past several weeks.

Of 132 million tonnes of blast furnace capacity that was temporarily shut down due to the pandemic, 34% has been or is about to be restarted, according to UBS analyst Myles Allsop.

"We expect producers to announce further restarts of blast furnaces over the next few months due to operating issues caused by extended outages," he said in a note.

Steel demand is being fuelled by a global revival of industrial production, with JP Morgan's global manufacturing purchasing managers' index touching a 21-month peak in August, and rising sales in the key auto sector.

Despite the revival in steel prices, company margins are still suffering due to high costs, especially of iron ore. Spot prices of the raw material are hovering at the highest levels since January 2014.

Profitability in China is also under pressure.

"Spot domestic margins are showing signs of compression as softer pricing is being compounded by rising raw material costs," Jefferies analyst Alan Spence said in a note.