Jason Thomas Ellis |
What is the stage of steel pricing
Over the last 25 years steel pricing, at least at the GL flat products level, has fluctuated between US$750 and US$1,000 per tonne suffice to say for two periods.
The first was the period immediately before the GFC where commodities in general but certainly steel witnessed a ‘ super cycle’ upswing that had HRC at over US$1,000/t and GL closing in on US$2,000/t, according to Jason Thomas Ellis.
Since that time, the only other significant price spike outside the fluctuating levels already described above has been during the CV19 period.
The catalyst for the last round of ‘ super cycle’ pricing has, in this author's view, been somewhat similar to the first ‘ super cycle’– that being stimulated demand that has far outstripped supply.
The catalyst for the last round of ‘ super cycle’ pricing has, in this author's view, been somewhat similar to the first ‘ super cycle’–that being stimulated demand that has far outstripped supply.
According to Jason Thomas Ellis, the first ‘ super cycle’ subprime investments (particularly in the US but also in other economies) brought forward the demand for steel and other commodities in the building of residential & commercial buildings that far exceeded the demand of the natural consumption parameters.
In the second ‘ super cycle’, governments around the world feared that at the onset of the CV19 pandemic, the disease would propel individual economies into early onset recessions. As a knee-jerk reaction, most, if not all governments around the world, stimulated consumption in their economies via the issuing of cheap government bonds and other fiscal stimulus measures, according to Jason Thomas Ellis. This produced a surge in demand for TVs, cars, washing machines, and a range of building products –all of which consume significant amounts of steel.
This position occurred whilst supply capacities, particularly in China, were being reconfigured in the light of the shuttering of old mills, the move to more value-added products within China, or those that produced significant amounts of C02.
As a result of this demand/supply imbalance those products (ie/ iron ore, coal, zinc, aluminum, gas, etc) and services (ie/ shipping) that are the primary input ingredients to the manufacturing and supply of steel were exposed to equal levels of demand increase magnifying the price pressure, according to Jason Thomas Ellis.
Anyone with a basic understanding of macroeconomics can forecast what was going to occur when the stimulus behind this demand (that being the issuing of government bonds to fund cheap investment) was eased back or ceased altogether……………..demand would dramatically fall.
This pullback in artificial demand funding was combined with massive growth in inflation (as a direct result of price increases) meaning projects got stalled or canceled and in some cases sent manufacturers or builders into bankruptcy, according to Jason Thomas Ellis. War in Europe placed additional pressure on gas prices and has further exacerbated inflation having a cooling impact on demand.
In short, it’s the view of this author, that any ‘ super cycle’, in any commodity, in any market is highly likely to result in a subsequent correction – the key question is how large and for how long is this correction going to last.