Short Range Outlook : December 2017

Demand now even better in global longs market as China continues to stay away

Supply and demand in the global long steel products market are still balanced following the price increases caused by the rising cost of production amid the tight electrode supply and higher costs of other raw materials. The good news is that there is even better demand compared to previous months as exports from China are still far from putting too much pressure on the international market. In addition to better demand – and more importantly – there is confidence in the marketplace.

Output curtailments in China result in increased need for higher grade iron ore

November 15 was the start of the heating season in China which also marked the beginning of production curtailments in some parts of the country aimed at reducing smog intensity during the winter period. These curtailments will continue until March 15. With lower production rates has come the need to use higher grade iron ore in order to maximize yields, and this situation has pushed up seaborne iron ore pricing.

Outlook brighter than in recent years but buyers remain cautious

The long products market is very stable and showing positive signs for the first quarter as well. Ferrous scrap prices are still on the rise and the production cuts in China and positive demand in many countries make the outlook brighter than in recent years and especially compared to the same period of previous years. However, in spite of all bullish feelings, market players remain very cautious, while increasing costs are making it difficult for buyers to make purchasing decisions.

Close watch needs to be kept on market developments

Availability of inexpensive electrodes seems to be vanishing. Scrap prices will sooner or later find a natural price limit. The Middle Eastern market is under pressure both in terms of consumption and production. In these circumstances, a close watch needs to be kept on every development. With mills’ margins in Europe at historically high levels, a correction in prices is possible at any time.

Most mills have filled their order books for January, meaning stronger prices

Having that said, the overall sentiment for 2018 is positive. China being out of the picture and the improved economic recovery around the globe means better demand for steel. It is also important to note that most mills have filled their order books for January production, which means stronger prices. Market players are definitely in a bullish mood.

Chinese mills likely to remain out of the picture

Chinese mills are out of the picture and it seems that this situation will continue. It is possible that new EAF mills will also be curtailed in China. The Chinese steel industry is expected to cut 32 million metric tons by March 2018, much of this capacity being billet. Shortage of melting sends strong signals to the market as re-rollers will be less active and more conservative.

Availability of liquidity boosts the market

The availability of liquidity provides another boost to the market as steel producers currently enjoy available financing at low interest rates.

US domestic steel prices lower than they should be due to perceived threat of imports

Demand is more or less unchanged in the US considering the year-end and the construction slowdown expected in winter. Service centers in the US curtailed inventory a few months ago, and now domestic producers see the market as being in short supply. Nevertheless, US domestic steel prices for long products are still considerably lower than where they should be because of the perceived threat of more imports. The sales prices of domestic mills in the US are either cheaper than or at the same levels as import prices, making imports very hard to sell, especially three to four months into the future. It is certainly not a pleasant environment for importers/distributors, taking into consideration the uncertainty created by the Section 232 investigation.

EU region is stable

The EU region is stable and growing and the stronger euro is also a positive factor for the international steel market.

Continued high industrial output raises demand for steel

Continued high industrial output raises demand from steel producers globally. Ferrous scrap will probably be in high demand for the season. The main steel mills in the international market have realized that spreads above US$200/mt are needed to cover the cost increases and could be sustainable in the future.

Strong competition squeezes traders’ margins, regionalization of trade continues

Competition in the market has been strong on the traders’ side during the fourth quarter and their margins have suffered. Otherwise, competition is down to normal levels or is much less than before. The regionalization of trade which started in 2016 continues. Higher seaborne freight rates also make long-distance shipments less viable.

Market could be heading for spike in prices amid higher scrap prices and US tax cuts

The market is mostly stable except for some areas and we could be heading for a spike in prices, especially on the back of higher scrap prices and US tax cuts. The outlook for the next quarter is good except for the uncertainty created by Section 232 in the US market, among other factors.

Q1 2018 looks like being better than Q4 2017

Production curtailments in China will likely continue to bring up finished steel pricing, thereby reducing steel volumes for exports. During the first quarter of 2018, we could very well see Chinese steel exports dry up completely. On the other hand, the issue of availability of electrodes will surely put a cap on the production of EAF mills. Summing up, the first quarter of 2018 looks like being better than the last quarter of 2017.



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