Will the drop in oil prices lead to a drop in world steel prices?

Oil prices have plummeted in recent months. This raises concerns among market participants that a drop in steel prices, similar to the one recorded in 2015, could occur. In December of that year, the average global MEPS hot rolled coil deal price fell by about $ 100 per tonne below the lowest recorded during the 2008/9 financial crisis.

Few, if any, energy market analysts expected US crude oil prices to fall into negative territory in April. This prompts MEPS to consider the relationship with the selling price of steel. Will the current sharp decline in world oil prices lead to a collapse in the steel market compared to the one that was recorded five years ago?

There are many differences between the fall in oil prices this year and the decline seen in 2015. The recent catastrophic decline in oil prices comes amid a sharp decline in travel around the world. Flights are suspended and vehicle use is decreasing following measures to reduce the spread of Covid-19. With the decline in demand, oil producers are trying to maintain excess supply.

Steelmakers cut production

The ongoing coronavirus pandemic is creating instability in the global steel industry. End-user consumption is dropping as many businesses are closed. However, steel production is being cut to stem the oversupply in the market. Part of this decline in steel production is directly related to government-imposed restrictions on industrial activities in countries around the world. The oil industry has yet to record similar production cuts.

Supply constraints, along with existing logistical constraints, could curb the decline in global steel prices in the near future. However, further significant declines in steel sales cannot be ruled out, especially in the US.