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A tale of two products: as plate struggles, coil surges

January 5, 2021

Stark contrasts are currently being witnessed between the markets for steel plate and coil. While the former is grappling with weak consumption and overcapacity, the latter is flourishing amid brisk demand and tight supply.

 

The differing fortunes are demonstrated in the recent price trends of the two products. Since reaching a low point in June/July, the MEPS world average hot rolled coil price has surged by approximately US$150 per tonne (30 percent). In contrast, gains for the MEPS world average plate value have been much more modest at around US$60 per tonne (11 percent). This has led to the price premium that carbon steel plate typically commands over coil evaporating in many countries around the world.

 

Prices for coil have strengthened considerably since the middle of the year, thanks to recovering demand and restricted supply. End-user activity recorded a stronger than expected rebound, and this left many companies short of steel.

 

Consequently, steelmakers were forced to undertake substantial production cuts. Crude steel output, outside of China, was slashed by 20 percent in the second quarter, compared with the previous three month period. However, when lockdowns were lifted and demand started to recover, the mills failed to boost production to meet the increased requirements of their customers.

 

Question marks are being raised about the sustainability of the automotive industry’s recovery, amid lockdown part II and fragile economic fundamentals. Nonetheless, with inventory replenishment continuing and supply tightening, coil producers are likely to enjoy the season of light, at least for a while longer.

 

Activity in plate-using sectors has shown little improvement, in contrast with the consumer-related rebound that has boosted the coil market.

Along with reduced sales volumes, plate producers are suffering with weak profit margins. While coil mills have been relatively successful in lifting their selling prices to recoup rising input costs, such as those for iron ore and ferrous scrap, plate producers have struggled to recover their elevated expenditure, with many now facing severe financial difficulties.

 

Hopes of a vaccine have boosted stock markets in recent weeks, but such prospects are unlikely to be sufficient to convince decision makers that now is a good time to invest substantial capital in large scale projects. Consequently, plate’s winter of despair is expected to persist.