Steel is Ukraine’s other big war commodity shock


The bombs falling on the blast furnaces of Mariupol, the Ukrainian city besieged by Russia, are a symbol of how war has disrupted the steel market.

The world is obsessed with the impact of war on global energy markets. Soaring oil prices grabbed the headlines. But alongside oil, steel is a foundation of the modern economy. The ubiquitous commodity underpins the world as we know it, a key material in everything from skyscrapers and cars to washing machines and railroads.

Today, the Russian invasion threatens to turn steel into a luxury item. Prices have surged and the recovery will be felt everywhere, adding to global inflationary pressures.

Consider the average car: about 60% of its weight comes from steel, according to the trade body World Steel Association. In terms of cash, the cost of this steel has risen to more than 1,250 euros ($1,379) from around 400 euros at the start of 2019.

For central banks, soaring steel prices are another inflationary headache. Meanwhile, European governments may face both price hikes and the threat of potential shortages this summer. Reinforcing steel, the long, corrugated rods used to reinforce concrete in every construction project, may soon be in short supply.

The European Union has already imposed sanctions on some Russian steel sales and has targeted most of the country’s oligarchs who own large swathes of Russia’s steel industry. And the war practically stopped Ukrainian steel production.

Last week, the cost of steel for rebar in Europe reached a record 1,140 euros per tonne, up 150% compared to the end of 2019. And the price of hot rolled coils, a form of popular steel, reached an all-time high of around 1,400 euros. per tonne, up nearly 250% from the day before the Covid-19 pandemic.

One of the reasons for the price spike is the sheer size of the Russian and Ukrainian steel industries. Russia is the world’s third largest steel exporter, behind China and Japan, while Ukraine is the eighth.

Colin Richardson, head of steel at Argus, a pricing agency, estimates that Russia and Ukraine together account for around a third of EU steel imports, nearly 10% of demand interior of the region. And Russia, Belarus and Ukraine together account for around 60% of total EU rebar imports. They also hold a huge market share for slabs – the large pieces of semi-finished steel.

The rise in prices is also due to the impact of the war on energy prices and on the steel industry outside of Russia.

Although the steel is associated with huge blast furnaces like those destroyed in Mariupol, Europe, around 40% of the metal instead comes from electric arc furnaces or mini-factories. Rather than iron and coal, mini-mills use huge amounts of electricity to melt scrap into fresh steel. Mini-mills are more environmentally friendly, but their Achilles’ heel is energy consumption. And at the moment, Europe lacks energy.

With the war pushing up gas prices, short-term electricity prices in Europe have also risen, peaking earlier this month above 500 euros per megawatt hour, around ten times higher than before the crisis. Soaring prices have forced many mini-factories from Spain to Germany to close or reduce production, only operating at full capacity at night when electricity is cheaper.

The shutdowns are further tightening the European market, prompting some users to fear not just high prices, but possibly even shortages. Steel executives fear prices will rise sharply, perhaps another 40% to around 2,000 euros a tonne, before demand slows. Speaking privately, industry leaders say if electricity prices rise again and more European mini-mills close, the prospect of real shortages of rebar steel is real. Panic buying can also inflate prices.

Brussels and London must wake up to the crisis. If the global economy has learned anything during the Covid pandemic, it’s that supply chain issues have spread faster than expected and are also having a deeper impact than expected. And there are few raw materials as crucial to so many industries as steel.

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Javier Blas is a Bloomberg Opinion columnist covering energy and commodities. He was previously the Commodities Editor at the Financial Times and is the co-author of “The World for Sale: Money, Power, and the Traders Who Barter the Earth’s Resources.”


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