Short Range Outlook : July 2018

Global long steel products market impacted more and more by protectionism, though demand performs well

The global long steel products market is feeling the effects of protectionism more and more every day. Canada has started another investigation on imports, the third within a period of only 12 months. The EU is expected to announce quotas based on the average import volumes of the preceding three years, as a result of its safeguard investigation. On the positive side, industrial demand remains at elevated levels in general in the global market. Steel output in 2018 so far compared with 2017 is up by seven percent due to strong demand.

In general, inventories in the supply chain have been reduced which has led to swings in pricing. When and if there are uncertainties over tariffs or policies or elections, then demand has been postponed or has had implications on currencies.

Amid so many uncertainties, buyers are cautious, mills announce price increases

The scenario is worsening as so many uncertainties – politically and economically – have changed the minds of most investors all around the world. Buyers are cautious and are expecting a weakening in prices, while mills announce price increases.

European mills able to raise prices, but will face higher scrap prices

Imports into the EU market are almost impossible with the current exchange rate and therefore European mills are able to increase prices. On the other hand, the current exchange rate will cause an increase in scrap prices on euro basis, affecting the same mills negatively.

Post-election situation in Turkish market still unclear

The reaction of the Turkish market following the June 24 elections is still a big question mark at this point. Turkey’s reinforcing bar exports are still declining, which is quite a surprise, even though the market looks fine for Turkish exporters as sales to the US market have resumed. If the Turkish government goes ahead with its huge canal project, the country will continue to consume a huge amount of reinforcing bars. Of course, this remains to be seen.

Billet import volumes arriving in Turkey increase

On the other hand, billet imports into Turkish market have doubled during the first four months of this year and it seems like billet will continue to be the hot item in the market. It will also be very important to see the Turkish reaction to the safeguard measurements expected to be announced by the EU in the first half of July.

Tougher for importers to compete in US especially as US mills hold back price hikes

It has become tougher for importers to compete in the US market after the 25 percent duty imposed on most countries. Domestic mills in the US are now holding back further price increases especially on reinforcing bars to avoid a government reaction, which makes it harder for imports to compete. As of the beginning of July, US domestic reinforcing bar and wire rod sales prices are lower than import prices. The threat of safeguard measures from Canada as well as from the EU is of course of serious concern.

Emerging markets continue to perform

Emerging markets continue to perform despite the strengthened US dollar. That said, the major concern is the increase of output in China.

China’s steel consumption even better this year, worrying increase in its steel output

Steel consumption in China has been even better so far this year. The Chinese authorities announced a capacity cut of 45 million metric tons in 2016, the same amount last year, and another 30 million metric tons this year. We had been told that these cuts mainly concerned induction furnaces which were operated under the counter. That means those were not just idle
capacity cuts but real steel production cuts. Under these circumstances, it is pretty difficult to understand the current huge increase in Chinese steel production. When we add the tonnage cut out of the market on to the current output level, we reach almost a billion metric tons per year of steel production. The announced consumption and inventory levels also seem to be a little difficult to understand.

Possible impact of China limited by closed doors in many export markets

One thing for sure is that China will not have the same effect as they have had in the past since the doors are closed for their exports in many markets, even though Chinese steel exports have continued to grow from the extremely low levels seen during the winter months.

Overall, longs market is mostly stable despite uncertainties

At the moment, demand in the global longs market is good. Supply is still in check, allowing mills to have positive margins. Another positive is that traders will have more volumes to deal with due to trade measures. There is reasonable and fair competition in the market, and the market can be described as mostly stable, although there are some concerns due to ongoing uncertainties.

Higher oil prices push up costs

Higher oil prices lead to higher costs especially in terms of the supply chain for virgin raw materials used in steelmaking. The outlook remains bullish for oil as demand is expected to grow. It seems like scrap prices have reached a stable level.

Mostly satisfactory outlook for the coming quarter, Chinese exports need to be watched

The outlook for the coming quarter is mostly satisfactory as demand and supply are expected to be in balance as long as we have clarity from China and in relation to protectionist measures. Although we are positive, we always need to maintain a certain reserve regarding Chinese exports as the increase in production and the possible slowdown in demand may cause aggressiveness in the export markets in the second half of the year.

Results of safeguard investigations will be crucial

The main threat is the results of the safeguard investigations which we expect to hear in July and which may have a negative effect in the long run.




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