Short Range Outlook : August 2017

Good demand in global long steel products market backed by reasonable growth

Demand in the global long steel products market is good and steady as reasonable growth is seen to be globally providing support for steel consumption.

Chinese steel exports at 2014 levels playing huge role in global supply-demand balance

Chinese steel exports are down to 2014 levels after having been considerably higher for the past three years. Obviously the reduced supply from China has played a huge role in the prevailing supply-demand balance in the international market.

China’s steel exports down 28% in H1 – only its exports to Latin America and CIS increase

China exported 16 million metric tons less during the first half of 2017 compared to the first half of last year, which means a 28 percent decrease. Only two areas have increased their steel imports from China during this period – Latin America and the CIS. All other markets have imported less. The largest export market for Chinese steel, i.e., South Korea, imported only six percent less during H1-2017 compared to H1-2016, which means all other major markets received a lot less Chinese steel.

New sourcing is now the name of the trading game

As a consequence of the sharp drop in Chinese steel exports, new sourcing is now the name of the trading game in the global market. At the same time, many domestic markets are strong and are keeping more steel at home. Old demand cannot be filled by new sources and supply is restricted by several factors including political process, currency changes, better  “home markets” and increased input costs.

Turkish pricing for scrap reaches 2016-highs

Turkish pricing for scrap has reached 2016-highs in the $320s per metric ton. Demand appetite has strengthened considerably with scrap tonnages booked exceeding last year for both August and September shipments. Strong Turkish demand for scrap persists due to multiple factors: the weak US dollar, lower steel exports from China, solid demand for steel products and strong pricing. The utilization rates of scrap-based steel production have increased.

Supply appears to be on the rise in US long product market

In the US, demand for long steel products is the same but supply seems to be rising. International prices have increased, making it even more difficult for imports to compete with US domestic production.

Section 232 still a concern for future business despite postponement

The announcement of the much-feared Section 232 safeguard measures has been postponed, which is good news for material on the water. However, Section 232 is still is a concern for future business.

Prices exceed $500/mt FOB in global market

Prices in the global market are increasing and supported by both local and export markets, exceeding the $500/mt FOB barrier. This is now true for both Chinese origin reinforcing bars and Turkish origin reinforcing bars, the two major drivers.

Chinese capacity shutdowns the most dramatic physical change since fall of Soviet-led trade block

China continues to shut down capacity. We have to view this as the most dramatic physical change that has occured since the fall of the Soviet-led trade block. Low inventory levels in China are also a major positive factor for the outlook of the market.

US dollar continues to lose strength

The US dollar has continued its weakening trend. This year the US dollar has lost 12 percent against the euro, which is a major driver for commodities. Low interest rates are also helping to boost market activity.

Electrodes can become a major issue if EAF capacity utilization continues to rise

UHP electrodes which last year traded at $2,000/mt are now trading above $10,000/mt. Some spot trades are even concluded at $15,000/mt. This could become a major issue if utilization rates of EAFs continue to rise. Those producers who have secured a steady supply of electrodes will have a significant advantage. Another potential issue is refractories. These issues will limit production in the short run.

Protectionism is helping those who are trading fairly

Protectionism, on the other hand, is helping those who are trading fairly.

Some traditional export markets like the GCC are out of range due to their low prices

The competition in the market is reasonable in some areas but still strong in others due to increased prices, while also some traditional export markets like the GCC are out of selling range due to the much lower prices in such markets.

Second half expected to be competitive in terms of buying

The second half of 2017 will be competitive in terms of buying, which means higher prices unless there are some unforeseen and unexpected developments. Due to the dramatic rise in prices of certain products, some of the usual price differences between product groups have become dislocated, like the prices of wire rods versus reinforcing bar prices.

Chinese blast furnace mills raking in profits despite higher costs

Despite higher coking coal and iron ore prices, Chinese blast furnace mills are raking in profits on the back of higher rolled steel prices.

A few factors which could change the market situation

Having said all the above, if the US administration comes up with some hard safeguard measures under the Section 232 act, then the flow of the resulting additional supply will alter the global market situation again.

In addition, the fact that prices of raw material and steel products have increased significantly also raises concerns regarding a possible correction in the near future.

2017 looks like being a very good year for steel producers

Other than the two last-mentioned concerns, the market seems to be generally stable and satisfactory at the moment. It seems like 2017 will be a very good year for steel producers.




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