`.What’s causing steel price increases in 2021 in Australia? – Madewell Products

What’s causing steel price increases in 2021 in Australia?

In just over 12 months, iron ore prices have increased by over 260% from $83.50 USD/tonne in May 2020 to $219 USD/tonne in June 2021. The price increases are a result of several factors, primarily instigated by the flow-on effects of COVID-19, creating a perfect storm of high demand and low supply.

But before COVID-19 was even a term in our vocabulary, China’s major steel producers such as China Baowu Steel Group cut over 10% of its steel production capacity between 2016 to 2018 from its 2015 levels, according to the government.

As COVID-19 cases rose across China in January 2020, most Chinese factories were forced to shut and production almost came to a complete halt. Meanwhile, construction sites across the globe faced some initial or intermittent shutdowns. But many governments saw construction as the key to keeping the economy operating and kept sites open. This meant demand for basic building materials remained whilst supply was substantially impacted.

This shortfall of key materials put upwards pressure on iron ore prices and by June 2020 iron ore had risen to $101.50/tonne. But the shortfall of finished materials, including finished steel, exported out of China was just the beginning of an onslaught of factors contributing to ongoing price rises.

By July 2020, stimulus packages were being rolled out by countries across the globe. Much of this was directed towards construction which is seen as one the most effective means of fiscal stimulus. This caused a massive global surge in demand for finished steel products and added pressure onto steel producers who were already struggling to fulfil the backlog from factory shutdowns. Consequently, the iron ore price surged from $118/tonne to $158.50/tonne between 30 October and 31 December 2020.

The backlog of global exports in turn placed pressure on shipping, leading to a double whammy of rising shipping costs and a further reduction in supply of imported finished steel. This created a surge in demand for finished steel products from local Australian steel producers, such as BlueScope who are benefiting from record earnings.

In addition to the demand for iron ore, another key resource for steel production, coal, has seen its price soar. Since China placed an unofficial ban on coal imports from Australia in October 2020, coal prices more than doubled to June 2021.

As trade tensions rose between China and Australia through the first half of 2021, many Chinese importers were found to be stockpiling iron ore in anticipation of a worsening trade relationship. This further restricted supply and consequently pushed prices upwards.

More recent rises in June and July 2021, have been induced by a shortfall in Brazilian iron ore exports plus an announcement that China had suspended the agreed activities under the China-Australian Strategic Economic Dialogue framework.

As of 7 July 2021, iron ore prices were sitting at $222/tonne, down slightly from the peak of $229.50 in May 2021.

 

 

 

 

 

 

 

 

 

Graph showing steel price increases between July 2020 and July 2021 Source: Trading Economics https://tradingeconomics.com/commodity/iron-ore

 

What are some cheaper alternatives to steel?

Over recent years, significant advancements in material technology have borne the increasing suitability of steel alternatives such as CFRP (carbon fibre reinforced polymer), BFRP (basalt fibre reinforced polymer) and GFRP (glass fibre reinforced polymer) in major construction projects.

These alternatives can now provide adequate structural performance when used as structural members or rebar in reinforced concrete. They are gaining in popularity across Canada, USA and Australia as an alternative to steel for their enhanced durability, non-conductivity and chemical resistance. A study by the University of South Australia showed that the use of GFRP rebar as an alternative to steel can save cost in a standard project.