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Steel prices have soared globally since their recent lows in early 2020. Limited domestic supply, expensive imports and strong growth in demand have fuelled the rally in US steel prices. But with supply set to improve, at a time of softer growth in demand, prices should fall, Caroline Bain, Chief Commodities Economist at Capital Economics, reports.

Calling time on the rally in US steel prices

“A tariff of 25% was levied on most steel imports by the Trump administration in 2018 and imports have been broadly in decline since, although they have ticked up recently. That said, it now looks likely that the tariff will be at least lowered if not removed in the coming months, which should take some of the heat out of US steel prices. In addition, we expect further gains in domestic supply, in large part incentivised by current high prices. Pre-announced plans for capacity additions also suggest that potential domestic output could rise by about 5% this year and 7% in 2022.”

“Although we are positive on the outlook for the US housing sector, our forecast for housing starts suggests lower steel demand. Elsewhere, the auto sector (30% of US steel demand) is struggling with a microchip shortage, which will depress output this year. And while Biden’s infrastructure spending plan points to higher US steel demand, there is still huge uncertainty about the timing and scale of any spending. In any case, it is unlikely to have an impact this year.”

“We are forecasting a fall in US steel prices to $1,000 per short ton at end-2021, down from $1,600 today, but this would still be markedly higher than the five-year (2015-19) average price of $614.”