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A rational view of steel price fluctuations

Since January 2021, the price of stainless steelhas continued to rise, and the price has risen significantly in early May. However, entering the middle of May, steel prices began to pull back sharply. As of May 24, China’s steel spot prices have fallen sharply.


There are many factors driving the rise of steel prices.


One is the strong demand for steel. Thanks to the effective control of China’s new crown pneumonia epidemic, China’s economy has resumed steady growth, and the downstream industry’s prosperity has continued to rebound, bringing huge demand space.


The second is that the supply reduction is expected to be strong. Under the government’s environmental protection requirements, China’s crude steel production is significantly restricted, and the market supply is expected to decrease strongly.


The third is the rigid cost support brought about by the sharp increase in raw material and fuel prices. Since the beginning of this year, the prices of raw materials and fuels have risen sharply, leading to higher production costs of steel companies, and they have raised the ex-factory prices of steel to hedge cost pressures.


Fourth, global currency liquidity is loose, and international commodity prices have generally risen. With the recovery of the global economy and the U.S. vigorously promoting the infrastructure stimulus plan, the prices of international commodities, including steel, have risen sharply, driving China’s steel exports to increase. According to data from the General Administration of Customs, China exported 7.973 million tons of steel products in April, an increase of 26.2% year-on-year; the cumulative export of steel products in the first four months was 25.654 million tons, an increase of 24.5% year-on-year.


Although the adjustment of steel import and export tariff policy to “promote and suppress” has been implemented, since China’s steel prices are still in a “depression” in the international market, the profits of steel companies exporting steel are still considerable.


In the face of rising steel prices, certain downstream industries that cannot effectively transmit costs have difficulties in operating, especially long-term industries that are most affected. Steel prices have risen sharply, and downstream terminals have reduced their acceptance of high-level steel prices. They are basically “purchased on demand, ready-to-use”, which indirectly affects the release of later steel demand.


Downstream steel companies must correctly understand the fluctuations in steel prices, and be fully prepared and actively respond to them. Although the current steel price has corrected somewhat, do not expect to return to the previous low level. This is unrealistic and impossible.


In the environment of loose global currency liquidity, steel traders must practice their internal skills, strengthen internal management, strive to reduce operating costs, improve capital operation efficiency, and at the same time work hard on services, connect upstream and downstream, and provide good services. At the same time, it is necessary to adjust the business strategy and avoid buying goods rashly and hoarding goods blindly.