KUALA LUMPUR: The global average steel price is likely to reach US$660 per tonne in the near-term as demand stabilises following the sharp recovery this year, according to Fitch Solutions.
The rebounding global steel demand from Covid-19 was outpacing mill restarts in Europe and the Americas, leading to a steel supply crunch, the firm added.
"Prices across different regions are now at their highest levels in at least 10 years, with US prices being particularly steep and at a very elevated premium to global averages," said Fitch Solutions in a report.
It expects prices to average significantly higher this year, with the ongoing rally pushing the annual average higher.
"We see production recovering strongly in 2021, amid a return to normal activity as vaccine roll-outs gather pace and with elevated profitability incentivising mill restart. Our new forecast assumes prices will average at their highest level since 2018," said Fitch Solutions.
It said the ongoing rally in prices, at a time when input prices of iron ore and coking coal were stabilising, was sending steel profits to multi-year highs.
However, Fitch Solutions said steel prices could head lower in the coming quarters as the supply crunch eased.
"The strong pick-up in steel demand in 2021 amidst a robust and broad economic recovery, will impede prices from crashing and will help them average at elevated levels this year."
Fitch Solutions said production would expand faster than consumption in 2021 as Chinese demand tapered off.
Although 2021 would be a year of recovery for the global steel sector, the recovery would be incomplete ex-China, said Fitch Solutions.
While China's production and consumption of steel in 2021 will be well above pre-pandemic levels, 2021 output and demand will still lag pre-Covid levels for most countries.
"We see global steel production rising by 5.6 per cent in 2021, after it fell by 0.6 per cent in 2020, while we forecast global steel consumption to recover by 4.0 per cent, following a similar 0.6 per cent decrease last year," it said.
Fitch Solutions said prices would be significantly lower in 2022 if production remained elevated, averaging US$600 per tonne next year, and US$535 per tonne over 2023 to 2025.
"We expect that a combination of slowing Chinese steel consumption growth and rising global steel market protectionism prompting greater production in affected countries to loosen the market and drag prices lower in the medium term.
"Chinese domestic demand for steel will slow overall in 2022 and beyond as the rebalancing of the economy away from heavy industry and towards the service sector resumes, which will drag down domestic steel prices in China and the global average," it added.