An analysis of the challenges facing the steel business in the current year amid the COVID-19 pandemic.
Those who, despite the difficult situation and high risks in the current steel market, still wish to continue their activities should be aware of and carefully analyze the following threatening factors:
1. The COVID-19 pandemic is leading the global economy into recession. The structure of viral and epidemic diseases is typically three-phased or three-waved: the first wave is the emergence and announcement of its presence; the second wave usually reports the re-infection of recovered individuals; and the third wave is the elimination and complete eradication of the disease. The spread rate in each phase differs, but the second phase is sometimes considered more dangerous than the other two due to over-optimism among those who have recovered. The Spanish flu of 1918 taught us that the only way to prevent these three phases is to break the chain of transmission. This means practicing personal and environmental hygiene, avoiding family and business gatherings, refraining from non-essential travel, and adhering to other guidelines announced by the World Health Organization and related agencies via state media.
2. Less governmental attention this year to the most effective driver of the steel industry: housing and government support for construction projects. China, the most influential country on steel product prices, initiated housing development and support programs in the summer of 2019. However, the recent viral outbreak and its spread have caused it to reduce its support this year. The status of construction projects in our region is also not assessed positively. In Iran, there is currently no significant budget for new projects due to various economic reasons, so demand will not be strong. In the most optimistic scenario, if the coronavirus leaves the world, the demand situation will be the same as in 2019, before the pandemic.
3. Due to the current situation, the production speed of steel units on a global scale has decreased. On the other hand, the decrease in demand has led to an increase in inventory (stockpiled goods). This factor leads to price competition in the market. According to statistics published from China, the inventory of steelmakers nearly tripled at the beginning of 2020 with the outbreak of the disease. Sometimes the statistics are unrealistic, so you should add a few hundred thousand or a few million tons to your estimates. In such conditions, some countries provide special support for the exports of manufacturing companies, which makes prices in the export market highly competitive. Therefore, take your competitors’ inventory in your business seriously and also monitor regional and global steel reports from reliable and trustworthy sources more carefully.
4. Meanwhile, iron ore had one of its best performances among commodities in 2019. It is likely that the current year will be a weak and declining one, given the increasing intensity of the global economic recession. Many analysts in this field consider an iron ore price below $80 to be normal for the new year, whereas it was around $94 in 2019 and at a 5-year peak. Europe is the world’s second-largest importer of iron ore after China, and the shutdown of factories due to the coronavirus outbreak will certainly put more pressure on the market for this raw material.
In summary: In the steel industry and trading sector, we have witnessed highs and lows in recent years. Each of these fluctuations has led to the growth of some businesses or the closure and dissolution of others. It is desirable to achieve sustainable growth in the steel industry through continued modernization and urban development.
However, there are currently significant differences in this regard across various regions of the world. The solution to achieving a desirable situation is to rationalize costs, especially in the raw materials sector. Despite this, developing countries will experience continuous demand growth and an increase in production capacity under normal political and economic conditions. On the other hand, fluctuations in raw material prices and energy volatility in today’s world still make us uncertain about achieving sustainable growth in steel, leading to competition that is sometimes irrational and even destructive. In this environment, successful companies or businesses are those with high flexibility that can quickly adapt to new conditions.