Dr Heinz-Jürgen Büchner, Managing Director of IKB Deutsche Industriebank KG, explains how top prices for the material came about and what developments can still be expected.
At the beginning of 2021, steel prices rose sharply: Why exactly did this happen? Prices almost doubled in a short time: This was actually one of the most substantial climbs I have ever personally experienced. It is mainly due to the massive slump in automobile production as a result of the pandemic: The steel industry scaled back its production capacities after demand collapsed and only slightly increased again from the fourth quarter of 2020. Steel prices were still low then. Then, at the beginning of the year, orders started coming in again from automotive suppliers, just like in mechanical engineering. And everyone was trying to get steel, but production was not prepared for these quantities. In addition, caution was exercised to see whether the increase might not just be a flash in the pan, and capacities were correspondingly ramped up with a degree of hesitancy.
DR HEINZ-JÜRGEN BÜCHNER
He holds a doctorate in economics and is Managing Director and Head of Industrials & Automotive at IKB. In this function, he is in charge of the metals sector and responsible for the Bank's commodity analyses.
If you want to produce steel, you need iron. How did it look here on the commodity side? Iron ore production was slowed down, especially in Brazil: There, safety measures had yet to be implemented after disasters such as the 2019 dam burst in the north of the country; moreover, Brazil was among the hardest hit by Covid-19. Australia maintained production to some extent, but all in all, strong demand caused iron ore prices to explode, so that we saw peaks of over 230 US dollars per metric tonne. By mid-2020, the price was still at 75 to 80 dollars.
What developments do you see for the near future? We expect iron ore production in Brazil to normalise, provided there is not another big Coronavirus wave there. Steel production capacities should also rise again to normal levels or slightly above: That will take the pressure off.
What can we learn from this crisis? An event like this pandemic with its effects had probably not been taken into account by any company in its risk calculations. I observe that this is changing and people want to learn their lessons. With the traffic jam in the Suez Canal, we have also seen how vulnerable export routes can be.