Short Range Outlook : September 2019

Global long steel market currently depressed amid more difficult circumstances

The global long steel products market is depressed at the moment as circumstances are becoming more difficult. It has become a buyer’s market and is difficult to secure orders at reasonable prices. The problem lies more on the demand side rather than with supply, and, therefore, it might take longer for a balance to be reached.

Steel prices decline amid sharp drops in raw material prices

Steel prices are going down, following the recent tendency of raw material prices. Iron ore prices have dropped by 25 percent in the last 30 days and coking coal prices are down 10 percent. Iron ore has collapsed from the recent highs of $120/mt at the end of July to levels of around $85/mt. The cost of steel production at BOF mills has come down to around or under the $240/mt level and the spread for semi-finished steel to around $150/mt. It is difficult to increase steel prices because there is insufficient growth in demand for steel and the new base prices for iron ore and coking coal allow some companies to run prices below $400/mt without incurring losses.

Turkish capacity utilization below 50 percent puts pressure on scrap prices

Ferrous scrap prices have trended down throughout the late summer and became further depressed as Turkish capacity utilization dipped below 50 percent. Scrap inflows have begun to slow down as an effect of rapid price adjustments and slowing industrial activity. Freight rates have been soaring during late August and early September.

European downstream industries not ramping up as much as last year

Production cuts have become more pronounced over the past month as industry and construction in Europe is not ramping up to the same extent as last year. Currencies have been moving a lot in spite of geopolitics, central bank monetary easing and Brexit. Globally, the biggest monthly fall in the value of the Chinese currency gives cause for concern.

Positive expectations for fourth quarter postponed until first quarter next year

Under these circumstances, many steel producers have already started slowing down their operations, extending maintenance and idling facilities. However, inventory levels would also need to come down in order to see some stability. Accordingly, our positive expectations for the fourth quarter have been postponed to the first quarter of next year.

Business stable in US while protectionism now in fashion worldwide

While global business has deteriorated, business in the US is stable. Domestic mills in the US, who are still enjoying a 25 percent safety margin, are adjusting their prices to keep them par with possible imports, thereby making the import business very marginal at best. Not only the US, but others as well are using every possible alternative to assign maximum antidumping or countervailing duties in each case, whether this is fair or not. Sadly, protectionism is in fashion now.

Turkish exporters continue to struggle  

The EU market will be entirely closed to Turkish exports until next April which means that exports from Turkey will inevitably slow down. Turkish exports to the US market have resumed for just a couple of players but sales are still deemed risky due to the difficulties in predicting the next move on the US side. The top three markets for Turkish rebar exports have been Yemen, Israel and Singapore, which do not provide security and confidence for the long term.

Steel prices in EU fail to indicate anticipated increase, real improvement unlikely before 2020

With the quota allowed for imports exhausted and given the lack of a significant threat to EU mills from other third countries, EU prices should have increased after the summer holidays. The weakness of the euro makes imports even more unattractive. However, the recent downward trend of ferrous scrap and iron ore prices is putting a lot of pressure on the EU markets. Even producers of high carbon content wire rod have been trying to sell mesh-grade wire rods, which adds salt to the wound. As a result, prices have not moved up despite good demand. It is difficult to expect real improvements until next year.

On the bright side – Chinese exports unchanged, trade dispute not yet fully-fledged trade war

Steel consumption in China is still at very high levels, according to reports, despite the escalating trade war, and exports from that country are still at the same levels of last year, which is something of a relief. Low interest rates will surely have a positive impact on the market, but the fact that the trade dispute escalation has not yet become a full-fledged trade war is probably the only positive factor for the market at the moment. However, slowly but surely, all countries are creating their own defenses under safeguard protection and are going in that direction.

Market competition is very high in most regions  

Competition in the market is very high in most regions either due to slow demand or the imbalance in the market, but is low in others only due to trade barriers. Despite the safeguard measures, competition is high in the EU as the majority of the mills have increased capacities and utilization. Supply pressure from EU domestic mills is expected to increase along with the seasonal slowdown in the fourth quarter.

Market status is fluctuating and unstable, outlook is cloudy and unknown

The current status of the market can be described as fluctuating and unstable. It seems that there is a dynamic change ahead. Ferrous scrap and iron ore prices are both expected to follow a weakening trend. There is no market improvement on the horizon and therefore the situation is unsatisfactory. The outlook of the market is cloudy and unknown, while we wait for the next tweet.



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