Like in any other product or commodity, multiple factors play a role in the increase and decrease of steel prices. One of the main factors that affects the fluctuation is the demand and supply of steel. Moody’s has predicted steel demand in India to grow around 10% in 2022 because of the government’s focus on construction of roads, railways, ports and airports. Apart from supply and demand the other factors that determine the price of steel are the global geo-political situation, industry trends, cost of raw material and transportation and season or time of the year. Let us look into each of them in detail:

Demand and supply – Demand and supply governs the price fluctuations globally in most products or services. When the demand is higher, the supply tends to be lower and when demand is lower, supply naturally tends to be higher. When supply is lower, prices increase and when supply is more, prices dip. Supply and price are inversely related. Most companies try to mitigate the ill-effects of price volatility by doing demand forecasts and by controlling the inventory. However, these measures are only partially effective.

Global geo-political situations– An event like the Russia Ukraine war can have a major impact on the steel prices. Russia is a major exporter of steel to the EU and other countries. The restrictions imposed on them can create a supply crisis but could be beneficial to India because demand would get routed to us. Also, the increasing government spend on infrastructure will also create and sustain a demand for steel while keeping the prices high and supply low.

Trends in the industries that use steel – Industries like construction, automobile, transportation are all heavily reliant on steel and a boom or slump in these industries would cause a resultant change in the steel prices too. The construction industry boom and the automobile industry slump has been the reason for major supply and price volatility in India among other reasons.

Raw material costs – Steel industry has a need for many raw materials for the production to go smoothly especially iron ore. Raw material costs have surged for Indian steel companies after the Russian invasion of Ukraine. Prices of raw materials have gone up dramatically with an estimated jump of 140%. When prices increased iron ore exports too grew. With most of the exports headed to China, has resulted in a raw material shortage for the domestic market in India. This in-turn has resulted in reduced steel production and higher prices. Fuel price hike is a factor that would increase the transportation costs and freight costs which too has had an impact on the soaring steel prices that we are seeing now.      

Season and time of the year – In India seasons, festivals and time of the year have a bearing on industries like construction which is heavily reliant on steel. Similarly, festivals create an uptake in automobile purchases which is an industry that is a large consumer of steel. Global weather conditions like extreme summers and winters and climate related disruptions also result in rising steel prices.

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