High Vehicle Costs Dampen Steel Market Momentum

Via AG Metal Miner

The Automotive MMI (Monthly Metals Index) broke its sideways trend this past month, inching down 3.36%. Though all components of the index fell, hot-dipped galvanized steel experienced a particularly noticeable price drop, as did several other steel types.This could indicate a trend reversal. However, consumer purchasing must rise in order for a reversal to happen, which elevated new car prices are currently preventing.

Overall, U.S. car sales experienced up-and-down performance throughout May compared to April. While auto sales were up from May 2022, the market still faces bearish pressure due to high-interest rates and high new vehicle costs.

Pent-Up Demand in the U.S. Automotive Industry

The car industry in the United States continues to experience pent-up demand for new automobiles. This proved a driving reason behind the temporary increases in auto sales (such as those in May). The term "pent-up demand" refers to consumers' desire to acquire products or services they have previously been unable to purchase. This inability to buy often stems from supply chain interruptions, economic downturns, or other unfavorable market conditions. In the case of the U.S. car industry, the COVID-19 pandemic, a lack of semiconductor chips, and a decline in output due to factories closing have all contributed to pent-up demand.

Indeed, the COVID-19 pandemic reduced production and created supply chain interruptions for many industries, automotive being no exception. As a result, it took car manufacturers time to build up inventory stocks again. Secondly, the ongoing lack of semiconductor chips only worsened supply chain concerns, forcing automakers to further reduce output.

Despite the pent-up desire for new automobiles, there are a couple of significant reasons why car sales in the United States are not increasing. For instance, the growing cost of new cars has left them out of reach for many consumers, causing demand to fall. Meanwhile, recent hikes in mortgage rates and fuel prices continue to cut into what little demand remains.

Hot Dipped Galvanized Market: Fluctuating Demand

Prices for hot-dipped galvanized recently fell below levels seen in early March. Increased infrastructure expenditure and automotive development are significant drivers for the steel industry, driving hope and supporting some bullish forecasts.

This is excellent news for steel firms that are investing in new mills and auxiliary services to meet demand, particularly in light of rising EV demand. In 2022, the worldwide hot-dip galvanized steel market was worth USD 87,228.43 million. Currently, experts predict the sector will grow at a CAGR of 5.1%.

However, hot-dipped galvanized prices have been trading flat over the last month, sitting just below support zones at about $1,200 per short ton. HDG activity matched that of other steel types, such as HRC and CRC. Prices have continued to fall after the year's start price rises, which were imposed by steel makers in an attempt to maintain high prices. On the other hand, the decrease in new car purchases has begun pulling down the prices of metals like hot-dipped galvanized.

By Jennifer Kary

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