We know that 2020 is a year we will never forget – a year where Covid-19, a virus originating in Wuhan in China at the end of December 2019, spread globally to all corners of the world. And yet a year later, we continue to fight wave after wave, as we look towards keeping our friends and family safe.
With all things steel related, the year has seen a rollercoaster in conditions. Whilst we cannot predict the future, we know one thing for certain: the effects of the pandemic on the steel and commodities markets are not yet over. Going into 2021, we see huge challenges and disruptions ahead, whilst the world continues to grapple with the effects of contracted economies and races to recover. Whilst a vaccine is in sight (and should be widely available by summer 2021), the broader economies will take a much longer time to recover and claw back the time lost over this past year.
We feel that the steel market in 2021 will be a year driven purely by economics. Supply and demand affected by a variety of both local and global factors. The four largest driving factors which will affect the supply and pricing in our market going forward are as follows:
- A greater demand, visible through the number of projects that were either delayed or stopped altogether when the pandemic began.
- A highly reduced supply, owing to huge mill closures from all corners of the world. As those mills begin to start plans to restart in January, we expect them to put their initial preference to domestic supply before international exportation.
- Huge logistical issues, ranging from lack of containers for export of goods, a lack of available vessels to sail between regions and expanding all the way to highly reduced labour at ports and much larger delays in processing paperwork necessary to lead shipments.
- Forex Rates – late November saw the Kenya Shilling weaken to a rate of 112.50 against the US Dollar, with most banks charging much higher rates from forex volatility.
The above factors are already been seen in the market. The months of December alone have seen the cost of scrap, billets and hot rolled coils (HRC) all rise by more than $100/ton, with their raw material counterparts such as iron ore also following the same trend. This leads us to caution those who are waiting for reductions in pricing against holding off, because we do not see a reversal of this trend coming anytime soon.
We all wish that we can move back to normality. But we have to ask ourselves – the longer that the effects of the Covid-19 pandemic are felt, what is normal? Will normal look like it did at the end of 2019? Or has 2020 truly changed the way we think and operate, becoming our new normal? – Avraj Bhachu
The writer is the General Manager at Accurate Steel Mills Limited, Nairobi, Kenya
