TMT (thermomechanically treated) steel bars are one of the most vital materials used in construction due to their superlative strength and durability as well as resistance to corrosion. Mostly, these bars are used to reinforce concrete structures, which are an integral part of the major infrastructure works. Nevertheless, just like any other good, TMT steel bar prices fluctuate, which is influenced by several factors such as demand, supply, and other circumstances.
For the construction, real estate, and manufacturing industries, which are heavily dependent on steel, knowledge about these price drivers is of utmost importance. In this blog, we will explore the main factors impacting TMT steel bar prices and the complications that these factors bring about, such as the global market, politics, and economies.
Factors from the Perspective of Demand
The costs of steel TMT bars are also founded on several market factors, one of which includes the demand for steel. This is because there are a number of industries that apply steel for their day-to-day operations, such as construction, real estate, and large infrastructural ventures.
1. Growth in the Construction Sector
The construction sector remains among the largest markets for TMT steel bars. The growth of the population around the world, coupled with increased urbanization, leads to the provision of more houses, commercial buildings, and infrastructure. This trend is further supported by the countries experiencing most rapid urbanization, like India and China, as well as some nations in Africa, who have an increased demand for steel bars. It does not matter if high-rise buildings, bridges, transportation system construction, or any other structures; steel bars will always be in high demand.
2. Expansion of the Property Market
In the same vein, the real estate market is a major contributor to the consumption of steel reinforcement bars. Whether it is residential, commercial, or industrial projects, all types of construction work utilize strong construction materials, and TMT bars are fundamental in constructing any durable building. A surge in the real estate sector is associated with an increase in steel bar consumption, thus increasing the cost of the in-demand commodities. In contrast, downturns in real estate activity tend to extend to low-driven demand and even drastic reductions in prices.
3. Infrastructure Growth Initiatives
A tremendous amount of steel is needed to undertake projects like the construction of roads, railways, airports, and bridges, among other infrastructure projects. The governments in many developing countries more often than not embark on huge infrastructure projects in a bid to spur economic development, and therefore, there is an increase in the quantity of steel used. Most infrastructure projects are subject to government policy and expenditure, and as a result, the announcement of such projects may affect steel bar prices immediately.
4. The Influence of the Consumer Sentiment and Economic Growth on the TMT Steel Bar Prices
Other prevailing market conditions, including consumer confidence, also help in informed forecasting of the TMT steel bar prices. When there is optimism in the economy among consumers and businesses, they tend to invest in more construction and real estate projects, therefore increasing the need for steel bars. On the contrary, when the economy is going through uncertainty or depression, for example, construction would most likely slow down; therefore, there will be less steel in demand, lowering its pricing.
Factors from the Supply Side
Although factors related to demand play a significant role, the supply side is equally important when it comes to pricing TMT steel bars. It includes several aspects like raw material availability, production capacities, and logistics, which result in price volatility.
1. Accessibility to the Primary Goods
The manufacture of TMT steel bars largely relies on their raw material constituents, which include iron ore, coal, and scrap metal. In situations where the supply of these raw materials is disrupted, the production of steel will be affected, resulting in shortages and increased prices. For example, natural calamities or even border repression activity against terrorists or mining industry country laws that provide restrictions on certain areas or activities in an iron ore country can also threaten the supply of these iron ore region farms, therefore making the finished steel product more expensive.
2. Production Capacity
The process of steel production requires a lot of capital outlay on infrastructure and technology. Any inadequacies in steel production capacity caused by equipment failures, strikes, or the closure of factories can adversely affect the production of steel and increase its price. On the other hand, underproduction or excess facilities in the industry can cause an imbalance in demand and supply, which leads to the decline of prices.
3. Cost of Energy
The process of making steel is heavy on energy consumption, and the cost of production comprises a significant amount of electricity and fuel. In locations such as India and China, where the production of steel is relatively high, the instability in energy prices affects the price of steel bars. For example, a fuel price increase raises costs of transportation, which in turn affects the cost of steel.
4. Challenges in Logistics
Challenges in the distribution of steel bars may arise due to natural occurrences such as earthquakes, political issues, or even strikes by labor forces. Transportation link, waiting time at the arriving destination, or even lack of containers for transporting steel products often result in delayed delivery of the steel, leading to unavailability of the product and a subsequent increase in its prices.
External Influences
In addition to the internal factors that control the level of supply or demand, there are external factors; they include the global market dynamics, political activities, and economic policies that sway TMT steel bar price levels.
1. Overview of Global Market Forces
The prices of TMT steel bars are sensitive to the global market forces and macroeconomic variables in the key steel manufacturing countries. In addition to the local economy, international prices of steel, along with trade laws and the supply-demand curve, play a significant role in regulating the local prices. For instance, rises in steel prices in China or cutbacks on the exports of steel are notable trends that can alter market prices in other nations.
2. Oscillations of Foreign Exchange Rates
In view of the fact that steel is a standard commodity sold in all the borders of the world, variations in local currency rates will automatically modify the price of steel. An increase in production costs is associated with the depreciation of domestic currency as raw materials and components become expensive when buying them from international markets. A country’s currency appreciation, on the other hand, lowers the cost of imports and may reduce prices of steel bars in the market.
3. Tariffs and Trade Policies
Tariffs, trade agreements, quotas, restrictions, and any other trade determinants are aimed at regulating trade. All of these aspects affect market prices of steel and, therefore, the steel industry. Domestic prices in turn rise as imports from emerging and established players are brought under tariff barriers. A similar situation arises when both the countries involved in trade have a trade agreement with another country that affects steel trade.
4. Weather Ruins and Other Interruptions
Extreme weather changes like earthquakes, floods, hurricanes, etc. can affect the processes of production and distribution systems, resulting in a sudden escalation of steel prices. The reason for this rapid and deep contraction of the before-mentioned market was also to some degree owed to external shocks, which can also be classified as unforeseen disruptions: the COVID-19 pandemic. During the pandemic, the price of steel dropped sharply because of the decline in demand, but prices shot up after a short period of time as economies started reopening, leading to scarcity in supply and exponential price increases.
Contribution of Worldwide Events in Adversely Affecting Steel Prices
1. The War Between Russia and Ukraine
The war between Russia and Ukraine is perhaps the best illustration of geopolitical events and their potential effects on supply and prices, especially for the steel industry. Ukraine is a key supplier of steel and pig iron, which is a key raw material in steel production. As a result of the war, there were numerous challenges in the steel production industry in Ukraine, which caused the shortages the U.S. and EU countries faced. On top of that, sanctions imposed on Russia made things even worse since it was impossible to talk about any steel imports from one of the top manufacturers in the world. Therefore, the steel price increased in other countries also.
2. Disruptions Brought about by the COVID-19 pandemic.
The outbreak of the COVID-19 pandemic brought about insurmountable hindrances that affected the global steel market. The beginning of the COVID crisis in 2020 prompted the downturn of the economy and caused a steel price drop since the demand was low. After some time, many countries introduced stimulus measures and grew construction activities, which created a rise in the demand for steel and consequently led to short supplies and elevated prices. Furthermore, the challenges in the world market and the inability to get enough manpower caused unstable prices.
3. China’s Economic Policies
Being the largest producer of steel in the world, China plays a key role in dictating the prices of steel within the global market. In recent times, China has been enacting a number of measures that are geared toward cutting down on the quantity of steel produced in the country as a means of lowering carbon emissions and achieving certain environmental goals. These cuts in production have naturally resulted in shortages in the amount of steel produced and caused a spike in prices within China as well as the whole world. In addition, China’s export tax policies on steel and the removal of the value-added tax rebates on exported steel have also increased the prices of steel in the international markets.
Heeding China: the Forces that Shape the Pricing of Steel
In summary, various factors interact to affect the prices of TMT steel bars, including the demand generated from the construction and real estate sectors, limitations on the supply side, and other influences like the global market and political factors. All these must be taken into consideration by companies that use steel, as that consequential cost-sense price changes may have on project implementation timelines, profitability, and other competitive advantages.
However, while factors like demand from infrastructure projects tend to be less erratic, others, such as geopolitical issues and natural calamities, can bring sudden price shocks. As a result, steel market professionals should be well aware of the current prices, trends, availability of raw materials, and other economic factors in order to counter the adverse effects of steel price fluctuations.
Be it a contractor, builder, or manufacturer, monitoring the impacts of factors that influence TMT steel bar prices on the market effectively assists in making purposeful choices that can help keep an edge in a competitive market.