Wartime Steel Spike Threatens to Hobble Global Economic Recovery
War Means Surging Steel Prices and Unfinished Infrastructure
(Bloomberg) -- A failed tender to build a bridge in Rome highlights another consequence of Moscow’s war: soaring steel prices.
There were no takers earlier this month for the 146 million-euro ($163 million) contract for the Ponte dei Congressi across the River Tiber as steel market turmoil left potential bidders wary of getting burnt. In the three weeks following Russia’s invasion of Ukraine, benchmark European steel prices surged 51% as shipments from those countries were taken out of the market.
That’s troubling for the continent’s recovery as steel remains an essential building block for the modern economy. Spiraling prices, on top of soaring power costs, leave European manufacturers and builders with a hard choice: absorb the pain, pass it on to their customers or curb output.
Europe relied on Russia and Ukraine for a fifth of its steel imports and the impact was exacerbated by surging energy costs that forced steel mills to reduce production. However, other nations including the U.S. and Turkey are also being hit by the loss of key products.
“It goes to the very core of the economic activity of major economies like Europe,” said Tom Price, head of commodities strategy at Liberum Capital. “The effect ripples back up the supply chain so that the whole of economic activity is hurt.”
The war in Ukraine, coming on top of previous supply-chain disruptions, is already leading to shortages of some grades of steel, according to Angelica Donati, head of business development at her family’s Rome-based construction firm Donati SpA. That includes corten, a naturally rusted steel used in construction.
“Corten steel, mostly produced in Ukraine, is completely unavailable at the moment,” Donati said. “This means that any site where corten is used -- it is a major component for viaducts in Italy, for example -- will inevitably have to stop production.“
Further steel price gains risk demand destruction, according to Bloomberg Intelligence analyst Grant Sporre, who sees the automotive and consumer goods sectors taking the biggest hit.
“Suddenly your car has just increased by 700 to 800 euros to make,” Sporre said. “That wipes out your margin, so you have no choice but to bump prices.”
The impact is also reverberating across the Atlantic. U.S. benchmark steel prices have gained about 56% since Russia’s invasion, after tumbling from record levels last year. Electric arc furnaces -- which account for about 70% of American steel output -- get more than half their shipments of key feedstock pig iron from Ukraine and Russia.
“Everybody’s scrambling because of the uncertainty,” Timna Tanners, an analyst at Wolfe Research, said in a phone interview.
The dwindling availability of pig iron is pushing up the price of another feedstock, high-grade scrap, as other EAF producers such as Turkey and Egypt seek to lock-in supplies.
“If they can’t get pig iron from Ukraine and Russia, they need to get scrap, and the best place to get scrap is the U.S.,” said Dan DeMare, director of sales at Heidtman Steel Products Inc. “So in order to keep it here the price had to rise -- that’s what created a price floor on the U.S. market.”
China -- the world’s biggest steel market -- also presents upside risks for global steel markets. Lockdowns in the hub of Tangshan have forced some closures of 19 blast furnaces in the area, according to local researcher Mysteel, sending prices higher.
In theory that could provide some relief for mills elsewhere in the world by curbing coal and iron ore costs. But that’s yet to materialize -- prices for both commodities have risen more than 35% in Singapore this year on expectations for Chinese demand to ramp up.
Any relief may come too late for Suomussalmi, where Finnish troops repelled the Russian army in the Winter War of 1939-1940. The town may now be forced to shelve its own new bridge, after higher steel prices helped to almost double the initial price tag.
“Some of the older folks said this project has been a decade in the making,” Mayor Erno Heikkinen said by phone. “We had an inkling steel prices were inching up, but the surge has really been sudden.”
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