Quarterly Report – July 2020

COVID-19 has affected every aspect of life globally. Its impact on the world economy is evident in three main ways: the direct effect on production and demand; supply chain and market disruption, and the financial repercussions on firms and markets. 

In the GCC, the negative impact of Coronavirus-related disruptions to the economy - particularly to transport, logistics and tourism - has been compounded by sharply lower oil prices and production on budgets resulting in cuts to spending plans in most countries in this region.

This tighter fiscal policy is in marked contrast to the expansionary policies among the world’s largest economies, which have provided eye-watering levels of support to businesses and households. The UAE is the exception here: while the direct fiscal stimulus has been smaller as a percentage of GDP than in developed economies, the UAE is the only country in the GCC where total government spending is expected to rise this year.

The virus is driving changes to the global economy so quickly as to put it in a state of complete uncertainty. Industry globally is bearing the direct brunt of economic uncertainties, marked by stressed supply chains, massive delays in incoming and outgoing deliveries, and increases in raw material costs. The pandemic has exposed vulnerabilities within global supply chains, irrespective of the industry. Industrial and construction suppliers around the world are facing an acute shortage of human resource and of supplies.

Stainless steel prices have been relatively stable in July. As far as this market is concerned, it appears the pandemic has had little impact so far, with prices of the most common grades of stainless steel just 2-4% lower than they were at the turn of the year in the majority of markets.

However, such stability masks growing issues for stainless steelmakers, who are increasingly unable to pass on rising costs to consumers and are thus facing cuts to their margins.

Even in Asia, a region often talked about in terms of oversupply, particularly since trade barriers have been erected in most regions of the world over the past few years, prices on some products are above the levels seen back in January following a slight revival in Chinese demand over recent weeks.

In the absence of substantial general support from demand, price increases have been driven almost entirely by changes in raw material costs, which stainless steelmakers have in turn passed on to consumers.

Both chrome and nickel prices are up around 10% from their late March/early April lows, and these movements have been feeding through to stainless steel prices. Raw material prices have been supported by supply cutbacks and issues with supplying both chrome and nickel to consumers following the implementation of lockdowns in various countries. But with lockdowns now being eased, raw material prices are likely to weaken as the year progresses, particularly since demand has shrunk and is likely to remain subdued.