While steel markets in Asia have demonstrated the most strength with regards to pricing through much of 2020, recent weeks have seen prices in Europe and the United States outperform those elsewhere.

In a way, much of this is simply catching up on the gains already made by Asian steelmakers. They were able to obtain higher prices because costs were rising given the stronger demand environment in that region – most economies there, most importantly China, have not been affected by the Covid-19 pandemic to the extent that economies in Europe and the Americas have during recent months.

While the demand side of the market has shown differing dynamics between various regions of the world this year, the supply response has generally been similar. Steelmaking facilities were temporarily shut or production reduced while steelmakers responded to an anticipated downward shift in demand and measures regarding social distancing came into force. This helped to cause a spike in prices, first in Asia, and now in Europe and the US, after demand growth has returned.

As we illustrate in our regional analyses this month, that demand growth has been particularly noticeable in the automotive industry – a key sector for galvanized steels. Steelmakers have diverted some of the material they have been producing from the spot market to their customers on long-term contracts – often those in the automotive industry – given the higher margins available here at present. This has caused spot markets prices to rise. But, as we argue, the demand growth from the automotive industry is unlikely to be sustained. As recent price developments in China show, steelmakers will have to be cautious in reopening sites or increasing production if they are to maintain their recently-increased prices and margins.

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