Approaching the end of the calendar year, steelmakers and consumers enter a busy period of contract negotiations for supply for 2021 or at least the first quarter or half year.

With the sharp increases in spot market steel prices during recent months, steelmakers are understandably looking to take advantage and secure higher contract prices. Compared with either late 2019 or May/June of this year, when contracts for the second half of 2020 were agreed, many flat-rolled steel prices are up by around $100-120 per tonne in both Europe and the United States. It is thus an increase of this magnitude that steelmakers are looking for with regards to contract prices, whether that be on hot-dipped galvanized steel or tinplate.

We discuss in our regional analyses this month that the timing is probably fortuitous for steelmakers. For, while prices have been squeezed upward in recent months due to some local tightness caused by demand growth, that tightness is likely to be relieved in the coming months and there remain questions about whether recent demand growth is anything other than a short-term phenomenon. The surge in automotive production in Europe for example looks particularly unsustainable.

Steelmakers in Europe and the US are now busy ramping up their output levels again, partly in response to pricing and margin signals but also for technical reasons – it is not desirable to operate blast furnaces at low rates for long periods of time. The ramp-up in production will take time, particularly for those steelmakers producing via blast furnaces. Nevertheless, while output moves much closer to pre-pandemic levels toward the end of this year and early 2021, there is a concern that this extra supply will arrive at a time of weak demand growth given the economic backdrop. Some of the recent spot market price gains are likely to be given up.

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