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03 Jun, 2021 / BY Steven Seaton

Volatility in the current metals market - June 2021

steel-mill-metals-market-2021The raw materials market is facing a period of extreme volatility. It is arguably the most unstable the industry has seen for decades.

The price of metals such as steel, aluminium, copper and iron are at their highest levels in years. And it is having a significant impact on manufacturers across the globe.

At JJS, we are committed to keeping our customers up to date with the latest market conditions. In this blog post, we provide an overview of the current metals market.

What is driving the current conditions?

1. Reduced metal production in China

China has vowed to reduce the production of metals such as steel and aluminium in order to contain carbon emissions. This is all part of the country’s big goals for climate action, pledging to become carbon neutral by 2060.

In an article for ING, Warren Patterson writes:

“Regional government restrictions within China for the aluminium and steel industry have raised worries over tighter domestic supply, and obviously with China a key consumer of metals, tightness or even perceived tightness has ramifications for the global market.”

We are already seeing evidence of this, with China now committing to mills in Europe and the rest of the world, which is leading to a reduction in capacity in other areas.

The Chinese government has enforced strict guidelines for manufacturers to follow in order to enforce their agenda. They have set out a deadline of June 2021 for manufacturers to demonstrate reductions or they could risk fines. This tight deadline has forced a stop to the use of old furnaces, which has reduced the mills output in four of China’s major mills. Demonstrating just how stringent the ruling is, the environmental bureau handed out a total of Rmb1.92bn ($293m) in penalties to 48 local companies in three days. 

The demand was already outstripping what could be produced. And now, the country’s capacity has been reduced. Ultimately, this has caused China to source a percentage of the material required for their increasing market from other areas of the world, and it’s having a huge impact globally.

2. US and China trade war

The trade war between the US and China is continuing to influence the metals market, with China removing tax benefits from the US. As a result, the US is also reviewing other markets to procure raw materials from, which is again saturating both the European and global marketplace.

3. Covid-19 disruption

Due to the ongoing Covid-19 pandemic and social distancing restrictions the manufacturing and mining output is already significantly reduced, which only exacerbates the current situation. 

As an example, crude steel production has fallen by 25% in Europe during 2021 and steel stocks in Germany are at a 33 year low. There have also been concerns around copper from Chile, although this does not seem to have impacted supply.

4. Rise in coil pricing

Limited material availability for flat steel has pushed coil pricing to the highest level ever recorded, as demand has outstripped supply since summer 2020. 

As an example, we have seen hot-rolled coil increase by €33 metric ton in a single day. The price has now increased to €995 per metric ton, having seen a €559 increase from €436 per metric ton since June 2020.

Despite strong demand, the price hikes are limiting the ability of buyers to acquire the volumes they require, with credit companies refusing to expand lines of credits to customers in line with the increases. One distributor told Fastmarkets:

“We are already struggling with getting needed volumes from mills and now, with credit lines full, we need to jump through hoops to be able to make payments for whatever we can get.”

The perfect storm

The combination of all these factors has created a ‘perfect storm’ scenario, leading to exceptionally high demand and low capacity. And this is now having a significant impact on pricing and availability. 

Numerous metal manufacturers across Europe have been forced to increase their prices. One metal manufacturer said:

“Current status for zinc coated steel is the worst we have seen for many years. The last 5 months has seen pricing raise from €0.8 per kg Dec 2020 / €1.1 per kg Feb 21 / €1.2 per kg Apr 21 / and now €2.0 per kg May 21. So you can see already, pricing given this month is already obsolete!

We have seen 150% increase in price due to lack of availability and now we are at a point where there is no material in volume available at a sensible price.

This week I found some raw material in the UK but due to the lack of availability suppliers can charge any price they want with some now quoting €5.5 per kg which is more expensive than stainless steel!”

Unfortunately, the level of these additional costs cannot simply be absorbed by your EMS partner. At JJS, Account Managers are contacting clients whose orders are affected to discuss how and when these costs can be captured and passed on.

Historically, the metals market has worked in 3-6 month cycles. However, what we are currently experiencing is unprecedented. JJS will continue to closely monitor the situation for our clients. We will of course be trying to negate the impact to all of our clients, which requires committing to additional material to help ensure we have capacity allocated with the relevant mills.

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