Short Range Outlook : November 2018

Global long steel industry in better position now despite tariffs and other issues

The global long steel products market has been off balance recently, and the general situation has gotten marginally worse. One of the leading indicators of the worsening in the market is that the current Turkish spread between import scrap and rebar prices is now the lowest value observed since August 2017. The number shows a downward movement of $55/mt from the peak observed in August this year. All in all, global consumption and demand remain strong. Despite the tariff war, the global long steel industry is in a better situation now – with the exception of Turkey and the MENA region – since the first half of 2008. Ferrous scrap prices are strong and other raw material prices are holding their ground, thus making steel prices stable as well.

Billet and slab prices currently driven by oversupply

Billet and slab prices are currently driven by oversupply, while ferrous scrap remains available and at higher cost levels. Hence, there is a certain rebalancing in the market.

Difficult to envision imports to Canada after latest safeguard decision

The steel trade continues to become more and more regional every day. It is very difficult to envision anybody intending to import steel into Canada following the latest safeguard decision. There is no doubt that prices should be firming up in the Canadian market as a consequence. Since Canada is the largest supplier of steel to the US market, the situation should also have a similar impact on steel prices in the US.

Demand in US is satisfactory, though buyers also awaiting decisions on tariffs

Demand in the US market is the same and satisfactory, while supply is also catching up. Lead times are getting shorter. However, due to the year-end, less material is being purchased for stocks. The buyers and sellers in the market are all waiting to see whether President Trump will remove the extra 25 percent tariff on Turkish steel or not. And what will happen to the 25 percent steel tariffs on Canada and Mexico, and those countries’ 25 percent tariff on US steel?

China’s winter steel output reduction a positive for the global market

The winter heating season in China is running from November through March and will withdraw exportable tonnages of steel. The Chinese steel output reduction over the winter season is certainly a positive for the global market, though no price changes have been observed because of that yet. Chinese producers are out of the international market and long product exports from China are very low, and in the coming weeks this is not going to change. Ocean freight rates have moved upwards, increasing CFR prices but not allowing any increases on FOB basis.

Prices in EU expected to firm up towards end of safeguard measure period

The EU mills are earning good money despite imports from Turkey. On the other hand, the first 100 days of implementation under the safeguard measures in the European Union are already over. Prices in the EU market are also expected to be firming up towards the end of the term. The quota for rebars is going down gradually and it looks like imports could become risky by early January. That said, there are some expectations that the EU may extend the current import quota system in November to last beyond the current period which ends in February 2019.

Weaker euro and low river levels make imports to EU more difficult

What makes imports to the EU more difficult now is the weakening of the euro and low water levels on all EU rivers, which has caused freight increases of up to three times the original rate and higher. With the winter season ahead, buyers are reluctant to commit for more imports this year.

Turkish mills suffer domestically, though EU remains a solid market for their exports

Lately, the EU has been a solid market for Turkish mills to replace the quantity previously shipped to the US. However, Turkish mills still suffer from very bad domestic market conditions. Under such market dynamics, it is pretty difficult for Turkish mills to pay the current prices for scrap.

Ex-EU scrap flow hindered by shipment problems on the Rhine

On the other hand, scrap flows have been satisfactory as the pricing is elevated. The problematically low water levels of the Rhine river have hampered logistics in the waterways to export terminals, and this has withheld some exports. Recent rail issues in iron ore mining in Australia may also keep iron ore pricing aloft.

More difficult now to export excess production to the global market

The competition in the market is getting tougher. It is reasonable inside internal markets like the US, EU, and China; but it is getting more difficult to place excess production in the global market because customers are not in a hurry as they do not foresee any reason to purchase quickly. Competition is particularly strong in reinforcing bars and billets.

Regional differences in market conditions

As trade keeps getting more and more regional nowadays, the market conditions show differences depending on the region. Although the market situation can be described as fluctuating and unstable in general due to trade interruptions and imbalances, stability is observed in the US domestic market, and also for steelmaking raw materials.

Outlook remains satisfactory for next quarter

Despite the fact that political decisions can impact international flows in a way that it is impossible to foresee as all can change with one tweet, the outlook for the next quarter is still satisfactory.




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