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Canadian steel prices recover from COVID-19 ‘devastation’

Peter Caulfield: Excess capacity in global markets is bad for the financial health of Canada’s steel sector.

Although Canadian construction is still one of the two main consumers of steel in this country, COVID-19 took a bite out of that industry’s appetite for the material in 2020, says Alex Carrick, chief economist of ConstructConnect.

“It could have been much worse,” he said.  “Warehouse and light industrial construction projects were not affected as much as, say, office towers.”

The other big user of steel in Canada, automotive vehicle manufacturing, was hit much harder, Carrick says.

“The demand for cars, and therefore for the steel to make them, fell dramatically,” he said.

Things are starting to look up, however.

“In 2021, the price of steel has increased, along with the price of steel inputs, such as iron ore and iron and steel scrap,” said Carrick.

In the United States in July 2021, he says, prices of steel bars, plates and structural shapes were up 45 per cent compared to July 2020.

The price of iron and steel scrap, which is used in electric-arc steel-making furnaces, was up 104 per cent in the same time period.

And the price of used cars and trucks, which eventually become a source of scrap metal, are up by 40 per cent.

Some observers have taken this year’s decrease in softwood lumber prices to be a sign of the impending fall in the price of other commodities, including steel.

“But not all forestry products have fallen in price,” said Carrick. “Some wood products have gone up in price. In fact, I think all commodities are about to see significant price increases.”

Canada is not only good at consuming steel, but it also does a pretty fair job of producing it too.

The members of the Canadian Steel Producers Association (CSPA) make around 14 million tonnes of steel, pipe and tube products per year in 30 steel-making facilities in five provinces.

About one-half of what they produce is used in Canada and the rest is exported to foreign markets, the U.S. in particular.

Catherine Cobden, president and CEO of CSPA, says Canadian steel producers are facing an uncertain future.

“COVID-19 had a devastating impact on steel producers,” she said. “Although we were designated an essential industry, we saw significant production curtailments in the second and third quarters of 2020.”

Beginning in late 2020, however, Canadian steel producers began to experience a recovery in several product categories.

“But the recovery has been uneven, and given the impact of COVID-19, we’re uncertain what effect it will have in the future,” she said. “While steel prices have been high across North America, it is not expected that these levels will be maintained.”

On top of the disruption caused by COVID-19 is uncertainty caused by changing international market conditions.

“In the early days of the pandemic, we saw North American steel producers curtail production, while other producers in the world, such as China and the ASEAN region (Association of Southeast Asian Nations), did not slow down production,” said Cobden.

“This has worsened an already challenging global overcapacity of steel and puts the North American marketplace at greater risk of unfair trade practices,” she said. “The situation underscores the importance of ensuring Canada maintains the strongest trade remedy and import monitoring systems possible.”

According to a government report on the ability of Canada’s steel industry to compete internationally, between 1996 and 2016, world crude steel production more than doubled, from 751.0 million metric tonnes (mmt) to 1,629.6 mmt, with China accounting for almost all of this increase.

Canada’s production of crude steel, by contrast, fell from 14.7 mmt in 1996 to 12.5 mmt in 2015.

Demand has not kept pace with this increase in world supply, with several countries still recovering from the economic and financial crisis of 2008–2009.

This excess capacity – an imbalance between supply and demand – in global markets is bad for the financial health of Canada’s steel sector.

According to the report, it creates downward pressure on global steel prices, undermining competition in open markets like Canada.

Specifically, it said excess steel production depresses prices in manufacturing supply chains and that Canadian steel producers can lose contracts for infrastructure projects to competitors using dumped steel that has been used to make an imported manufactured product.

Peter Caulfield is a Vancouver freelance business writer (B2B) who has been making complex subjects simpler for more than 30 years.