Critical Factors Affecting Steel Prices

Critical Factors Affecting Steel Prices

Steel is a bulk commodity related to the national economy, people’s livelihood, and a national resource. Steel prices fluctuate considerably, and steel prices are affected by various factors.
Steel structure building is greatly affected by steel prices, which are also cyclical. Therefore, it is of great significance to us to grasp the price trend of steel. To understand the steel price cycle and judge the price trend, you must know which factors are mainly affected by the steel price!

Factors Affecting Steel Prices

1. Affected by the economic cycle

Because steel is a global commodity, international steel prices heavily influence all domestic steel prices. When international steel prices rise, domestic steel prices cannot keep falling. In 2008, the U.S. financial crisis spread to the world and triggered an economic tsunami, and steel prices ushered in a sharp drop! The development of the steel industry is positively correlated with the development of the national economy. The speed of economic growth directly affects the social demand for steel consumption, thereby affecting the price of steel products. Therefore, it can be said that the development of the steel industry is affected by the economic cycle. When the national economy is in a period of rapid growth, the market demand for steel products is strong, and the price rises; when the national economy enters a period of adjustment, the cost of steel products will also fall accordingly.

2. The impact of upstream and downstream resource prices

The upstream raw materials of steel are iron ore and coking coal. My country’s iron ore is relatively poor, and most of it depends on imports. Moreover, the pricing of iron ore cannot be controlled by our country, so changes in iron ore significantly impact steel prices. Therefore, changes in iron ore prices are a crucial factor affecting steel production costs.
The downstream of steel is mainly used in real estate, automobiles, highways, high-speed rail, subways, ports, and other infrastructure industries. Therefore, when real estate and automobile sales are sluggish and the number of infrastructure is significantly reduced, the price of steel will also have a significant impact!

3. Impact of Supply and demand expectations

The market price of any commodity is closely related to the supply and demand situation, and steel products are no exception. Therefore, investors should pay close attention to the supply and demand situation of steel products and analyze the price trend of steel products.
From the figure below, we can see that steel prices have dropped sharply since April 2022. What is the main reason behind it?

Affected by the three-year epidemic, the Russia-Uzbekistan conflict, and other significant events, my country’s economic recovery will take time, real estate data is bleak, and local financial constraints will not vigorously develop infrastructure, which means that the steel demand will drop sharply. At that time, most steel mills have no intention of reducing production. You must know that blindly increasing production without steel demand will suffer greatly. On the one hand, blindly increasing production will cause the price of steel raw materials to rise irrationally. On the other hand, steel inventories continue to grow, and financial pressure doubles. The final result of excess supply is the price drop! We can predict that the trend of steel prices in 2023 will not be good.

Although my country will carry out macro-control on steel production, when the steel production is seriously surplus, the state will control the production of steel mills. However, steel companies should adapt to market supply and demand changes and make timely adjustments to avoid losses caused by significant price corrections.

4. Technical impact on steel prices

The technical level is an essential factor affecting steel products’ prices. The impact of technological progress on the price of steel products mainly comes from three aspects: first, the effect on the production process, and then the impact on production costs; second, technological progress leads to the production of steel substitutes, thereby reducing the steel demand; third, Technological advancements show to the substitution of steel products for other materials, thereby increasing the steel demand.

5. Steel prices cycle

During the recovery and recession periods of the economic cycle, the price of steel products is often in the stage of price rationality. Conversely, the price begins to enter the location of irrational rise in the period of economic boom, and the cost of economic depression often enters the stage of irrational decline. Perform comparative analysis.
On the micro level, according to the production cost and market price of rebar in the first half of 2015 and early 2017: the production and sales of rebar in the first half of 2015 were on the verge of losing money, the market sales price was close to the production cost of the product, and the market was in a stage of irrational price decline; At the beginning of 2017, the rebar market price and production cost showed a profit margin of nearly 1,000 yuan. As a result, the market enthusiasm for buying and selling was high, and the price rose irrationally.

The essential criteria for dividing the rebar market price into different stages are close to production costs and profit margins relative to or exceeding 1,000 yuan. It is also an essential feature for us to predict the periodic bottom and high point of rebar price.

Based on the above factors, we can judge the steel price level, whether it is in a bear market or a bull market. Therefore, make production plans for yourself according to changes in steel price cycles to avoid losses!

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