Home / Main / Scarcity of computer chips halted the rally in steel prices

Scarcity of computer chips halted the rally in steel prices

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Metallurgical plants focused on the automotive industry are now forced to look for new customers, redirecting steel volumes to the common market.

Scarcity of computer chips halted the rally in steel prices

World prices for hot rolled steel in coils declined 3.6% in October, putting an end to the unstoppable rise in steel prices over the past 14 months, analysts from the British engineering agency MEPS write.

“The downturn in automotive production is widely seen as driving the deterioration in the global steel market. The continuing shortage of semiconductors is forcing car manufacturers around the world to drastically reduce or even stop production at their factories, ”analysts say.

The agency records a significant weakening of consumer sentiment in the European steel market compared to the summer period. The availability of hot rolled coils in particular has improved. Delivery times from factories are rapidly decreasing, with volumes originally intended for car manufacturers being transferred to the general market. Moreover, the volume of steel imports rose sharply during 2021. However, efforts by EU steel producers to offset rising energy costs could halt price declines in the region in the coming months.

Asian roll prices have declined since their peak in August this year. Lower demand in a number of countries and end-user sectors has compensated for declining production at several factories in the region. Nevertheless, in October, price increases were achieved by manufacturers in China and Japan. Many Asian buyers have come to believe that deal prices may decline in the near future.

Hot rolled coil prices in the US have finally yielded to negative pressures seen in European and Asian regions in recent months. Inventory levels are rising and buyers are increasingly reluctant to place forward orders. In the meantime, transaction costs are expected to decline. However, few market participants expect steel prices to freeze amid healthy end-user demand and planned maintenance shutdowns.

The semiconductor shortage is unlikely to diminish in the short term. This will continue to restrict production in the global automotive sector and reduce steel consumption. However, many automakers are trying to adjust their production schedules to focus on vehicles with lower demands on the in-demand computer chips. This strategy could help limit the decline in car production in 2022.

It is not yet known how much the rest of the steel-consuming sectors will be able to cope with the slowdown in the growth rate of the automotive industry. The economic recovery from the coronavirus is still ongoing. Steel and energy costs are likely to remain high during the winter months. Consequently, despite the possibility of further declines in global hot rolled coil prices, they are expected to remain high in the first months of 2022.

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