The text below is an edited version of an article originally written by Erik Hedborg, Josh Spoores, Richard Lu. Read the full version here or speak to a CRU expert about market intelligence and analysis relevant to your organisation.
El Niño could reshape steel supply chains by disrupting construction activity, affecting raw materials production and increasing volatility in dry bulk freight.
Its effects could extend across several parts of the steel value chain at the same time, affecting steel demand, mining, raw materials processing and the movement of materials.
How could extreme weather affect steel demand?
Construction is the main channel through which extreme weather could affect steel demand.
Persistent heat can reduce on-site productivity, while drought can limit access to water needed for activities including concrete handling, cleaning and dust control. Heavy rainfall and flooding can also delay projects and interrupt construction activity.
The impact will vary between markets. Weather-related disruption could defer construction activity and, in turn, steel demand.
What could El Niño mean for steel raw materials?
El Niño could support mining activity in some regions while creating disruption risks for raw materials supply in others.
Drier conditions may make extraction and transport easier in parts of Australia and Brazil. However, more severe conditions could create different risks.
Forest fires, water shortages and constraints on processing capacity could affect supply, particularly where activities such as coal washing and ore beneficiation depend on reliable water availability.
The potential impact therefore extends beyond mine output to processing and logistics.
Could freight add to steel supply-chain disruption?
Yes. Changing weather conditions and trade patterns could increase volatility in dry bulk freight markets.
Unpredictable weather, changing cargo demand and longer trade routes could lead to short-term vessel misallocation, affecting charter rates and delivery conditions.
For steel market participants, this could affect the delivered cost of material and make established trade patterns less predictable.
Could disrupted steel demand return?
Yes. Weather-related disruption could defer steel demand rather than eliminate it.
Construction projects delayed by extreme weather may restart when conditions improve, while rebuilding activity could also support steel consumption.
The impact of El Niño will therefore depend on where disruption occurs and how affected construction activity and supply chains respond.
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