Carbon steel is widely used in various applications, from automotive to construction, and is known for its strength and durability. The demand for carbon steel is increasing due to its many advantages, including its low cost, versatility, and easy availability.

The carbon steel demand is anticipated to fall by 1,850 MMY by 2024. A change in the feedstock markets will also be seen due to the steel industry's decarbonization drive. The steel market's production rate will likely grow at a 1-2 percent CAGR from 2021 to 2025.

Asia is an overall exporter of steel and oversupplies it across the globe. On the other hand, North America and Europe are importers and have a shortage of steel at the moment. The cause behind the shortage of steel is translucent. Some areas have managed to recover from the pandemic shock in 2021. But there have been more COVID outbreaks worldwide, so the supply chain disruption has yet to heal completely.

In keeping with its measures to cut carbon emissions and achieve carbon neutrality by 2060, the Chinese government is eager to reduce its output levels. The ambiguous trade environment, tariffs, and export duties will likely increase steel market volatility.

Carbon Steel has a medium purchasing power in North America, the EU, and Asia. The production output of essential commodities, including iron ore, ferrous scrap, and nickel, is one of the leading market drivers. The lack of semiconductor chips has hampered this sector's recovery in North America and the EU.

Long-term dependence on domestic steel will be supported by the Biden administration's announcement that federally sponsored infrastructure projects may only employ melted steel poured in the US. Although there has been some improvement in demand, the supply chain for infrastructure and construction has once again been affected by the Russia-Ukraine war.

Due to the uncertain macroeconomic environment, the impending energy crisis, and the unstable geopolitical prospects, price volatility is anticipated to last over the long term. The global crude steel production for 2022 has increased by 3.7% compared to 2021 (151.7 million tonnes) (Mt).

Most large steel-making companies are vertically integrated and generate the raw materials needed for on-site steel-making, giving them medium-high supplier power. Additionally, providers are likely to run at lower capacity utilization rates in times of weaker demand to keep the supply-demand equation in balance. On the other hand, buyer power ranges from low to medium since different end-use industries have different levels of product uniformity.

Expenditures on labor and unions are expensive, capital costs are high, and there is an excess of steel on the market, which makes it difficult for new suppliers to establish new steel-making plants.

The U.S. passage of the CHIPS Act will encourage increased investment in domestic semiconductor production, ensuring that the microchips required for many essential goods are produced domestically rather than imported from abroad.

As anticipated, it will help US automakers' problems with chip supply and increase the industry's need for steel as we move into the first quarter of 2023. The demand for a reduced cycle time and the decarbonization of the production process stimulate technological advancement. The limitations include low-profit margins caused by COVID-19, limited gas supply due to COVID-19 increasing production prices, and high logistical costs for steel goods.

Raw materials used in the production of Steel are the major contributors (60%) to the cost involved. Steel prices largely depend on the costs of the raw materials, including iron ore. In the price outlook, a decrease is anticipated to be perceived with the highest in North America, then in the EU and Asia.

The biggest challenge in the steel market is increasing prices because of the steel supply constraints. However, the same challenge comes with opportunities of shifting the manufacturing base to a demand center in Asia. When trying to ignore the impact of price variations while sourcing Steel, one should consider initiating small to medium contracts with the vendors.

 

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