July 10th, 2011
Steel Price Cycle – Frequency and Magnitude of Price Swings
The steel price cycle is a well-documented phenomenon; with world steel prices typically moving to your peak, falling returning to a trough, then commencing a climb to a new peak yet again. The article that follows describes the recent frequency and magnitude of such swings in international steel prices, and also the reason behind these movements.
Frequency from the price cycle
Recent peaks in international steel prices, as least as judged by world f.o.b. prices for hot rolled coil, were evident in July 2000, May 2003, March 2005,July 2006 along with August 2008. Four ‘up-cycles’ were thus evident over now, using the average period between peaks being some A couple of years.
Recent troughs in world steel prices (also according to hot rolled steel coil pricing) were seen in May 1999, April 2002, August 2003, February 2006 as well as in June 2009. Four down-cycles were therefore seen over now, with all the average period between pricing troughs being approx. 30 months.
Averaging the lows and highs, the conventional length of the steel price cycle over the last 12 years computes at ~27 months.
Magnitude from the Price Cycle
Looking at the price swings from trough to peak, steel consultants MCI calculate a typical hot rolled coil price movement of approx. 84% per cycle. Which means the retail price cycle can be visualised in terms of international steel prices upgrading and down some 42% from other average level.
Some Implications
These observations have significant implications for strategic planning, because:
- with steel prices moving up and down some 40% or so every 27 months, as discussed above;
- and steel volumes moving up and down over the cycle also [with steel company orders often moving plus or minus 25% by way of a typical cycle]