We currently sense and hear slight uncertainties in the steel market. This alone is reason enough for us to take a closer look at some obvious facts or even just news. According to the alleged financial market trade press, two topics are currently present: the stumbling real estate group Evergrande and the possible future measures of the US Federal Reserve (FED). What is really going on here?

Stainless Espresso: Evergrande, U.S. monetary policy and the steel price
Stainless Espresso: Evergrande, U.S. monetary policy and the steel price

Evergrande: What is happening to the real estate group?

Chinese real estate group Evergrande is in trouble. The group has expanded too much in recent years and, according to rating agencies, has become over-indebted. It has debts of 300 billion US dollars. Pending interest payments of around 140 million US dollars are said to be impossible to settle.

Share price brought down by fake news?

The share price of China Evergrande Group went on a downward slide after the difficulties became known. While the share was still quoted at around HKD 15.80 in February 2021, it stands at just under HKD 2.22 on Tuesday, September 21, 2021. A not insignificant part of this crash seems to be due to a false report in the social media. The Chinese police and also the Evergrande Group itself, have classified the report as Fake News.

China will not tolerate uncontrolled chaos

The Chinese government has called on the Group’s management to take restructuring measures. Otherwise, they do not want to interfere in the company at the moment. However, the question that arises for overall: Will China really allow an uncontrolled collapse of such a corporation, which would otherwise turn millions of Chinese citizens into creditors of a failed company? We have our doubts about that. Instability has never been China’s friend.

FED: Tightening monetary policy in the U.S.

The topic of tighter monetary policy in the United States is not a new one. For months, there has been speculation about whether and when the FED will scale back its bond purchases. It is clear that tightening is necessary. However, we do not see drastic effects here. To a large extent, the market has already priced in the Fed’s monetary policy measure.

Steel market in decline?

The market for steel is always somewhat quieter during and after the summer period. As every year, this is a welcome ray of sunshine for those who have been hoping for falling prices all along. This year, in fact, it is particularly important for the buyers of the major steel consumers to push down prices in negotiations, because in many cases they bought too late or far too little.

European steel producers fully booked until 2022

The quotas are exhausted. Capacities in the EU already fully booked until spring 2022. And negotiations between major consumers and steel mills are starting early this year in September and October. This naturally raises the question of whether the market is being deliberately countered here. And with what intention?

Energy prices run away from EU steel producers

Another factor is the rapid rise in energy prices. The price of natural gas is at its highest level since 2008, impacting not only steel but also aluminum production in Europe and possibly the United States.

U.S. steelmakers do not want to expand capacity

Steelmakers in the United States announced a while ago that they do not plan to expand production extensively in 2021. Market voices also do not believe that producers there will allow a buildup of large inventories that will affect prices.

So what is the outlook?

Looking at the facts, history and common sense, there is more to be said for stability than for a rapid decline in prices.

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