Yesterday all the steel stocks shot through the roof. Today all the steel stocks plunged. Yesterday I WhatsApp “All the steel stocks shot through the roof and I am laughing to the bank” because steel price in Malaysia is much cheaper than in China and in USA.  

Today I am so puzzled and I found this useful information about the steel price increases so rapidly in USA for all interested investors.

In just over 12 months, iron ore prices have increased by over 260% from $83.50 USD/tonne in May 2020 to $219 USD/tonne in June 2021. The price increases are a result of several factors, primarily instigated by the flow-on effects of COVID-19, creating a perfect storm of high demand and low supply. 

But before COVID-19 was even a term in our vocabulary, China’s major steel producers such as China Baowu Steel Group cut over 10% of its steel production capacity between 2016 to 2018 from its 2015 levels, according to the government. 
As COVID-19 cases rose across China in January 2020, most Chinese factories were forced to shut and production almost came to a complete halt. Meanwhile, construction sites across the globe faced some initial or intermittent shutdowns. But many governments saw construction as the key to keeping the economy operating and kept sites open. This meant demand for basic building materials remained whilst supply was substantially impacted.

This shortfall of key materials put upwards pressure on iron ore prices and by June 2020 iron ore had risen to $101.50/tonne. But the shortfall of finished materials, including finished steel, exported out of China was just the beginning of an onslaught of factors contributing to ongoing price rises.

By July 2020, stimulus packages were being rolled out by countries across the globe. Much of this was directed towards construction which is seen as one the most effective means of fiscal stimulus. This caused a massive global surge in demand for finished steel products and added pressure onto steel producers who were already struggling to fulfil the backlog from factory shutdowns. Consequently, the iron ore price surged from $118/tonne to $158.50/tonne between 30 October and 31 December 2020.

The backlog of global exports in turn placed pressure on shipping, leading to a double whammy of rising shipping costs and a further reduction in supply of imported finished steel. This created a surge in demand for finished steel products from local Australian steel producers, such as BlueScope who are benefiting from record earnings. 
In addition to the demand for iron ore, another key resource for steel production, coal, has seen its price soar. Since China placed an unofficial ban on coal imports from Australia in October 2020, coal prices more than doubled to June 2021. 

As trade tensions rose between China and Australia through the first half of 2021, many Chinese importers were found to be stockpiling iron ore in anticipation of a worsening trade relationship. This further restricted supply and consequently pushed prices upwards.

More recent rises in June and July 2021, have been induced by a shortfall in Brazilian iron ore exports plus an announcement that China had suspended the agreed activities under the China-Australian Strategic Economic Dialogue framework.

The chart below shows in USA iron ore price has been going up in the last 12 months. The current price is US$ 222 per metric ton.  

The chart below shows the price of iron ore in Malaysia is Rm 5,200 or US$ 124 per metric ton which is much cheaper than in USA.

Yesterday all the steel stocks shot through the roof and today all the steel stocks plunged. I cannot find any reason for this erratic stock price fluctuation.

All investors should know that the Covid 19 MCO shut down has affected all Malaysian Steel companies in the last quarter. Currently there is no more MCO and workers are free to go to work. All the steel companies should report better profit in the next quarter.