Short Range Outlook – July 2012
The bottom of the recent market trend
Supply has continued to exceed demand in the long steel products market during the past month. However, some steel mills have already reacted and others are also expected to take necessary actions so that we will see an improved balance between supply and demand towards the end of the year. In fact, with less material now being sold, demand has started to build up.
During the past month or so, price competition has become more severe amid excess supply, although mills continue to monitor their selling and production strategies to maintain profitability. Cash bleeding strategies are not an option any more. Most producers have no room left to further reduce costs or prices. Also, movements towards protectionism as well as increased regionalism have been seen more frequently.
Due to low inventory levels of scrap at the mills, demand for scrap has recovered somewhat, causing a slight increase in scrap prices. Scrap collection in some areas is low due to the summer season, and supply and demand for raw materials is approaching an equilibrium.
The mills saw a revival in buying activity during the last 10 days of June due to raw material price movements, although the revival was less pronounced in northern Europe due to the lack of encouraging economic news and weakness in the local scrap market as mills have been preparing for vacation. Some constraints in demand in North African markets have also disappeared, helping to increase trade.
Despite the current issues in the market, global long steel demand remains reasonably healthy, with a certain volume of business still observed. The elections in the EU are over and this will enable administrations to focus only on economic issues.
With mills already scaling back output, it has been difficult for some traders to get material to meet July and August shipment dates. New orders for scrap have already been placed for arrival after Ramadan and the European holidays, when demand is expected to be better.
The Outlook for July:
The market may move sideways for a certain period of time in July. But since this will be the bottom of the recent market trend, the outlook is definitely positive. The market should start improving after August and is expected to maintain this trend for two to three months. During this period, prices will depend on the volatility in the exchange rate markets.