Short Range Outlook : January 2021

Short supply in global longs market, full impact of vaccines remains to be seen

Supply is still on the short side in the global long steel products market and this situation will probably not change until the second quarter. Chinese demand for raw materials and semi-finished products has been providing the main boost to the markets. As vaccines have started to be released, depleted supply chains have to be replenished, with plans being made for stronger production. Order books have filled up well. Along with the continuing high demand in most domestic markets and especially in emerging economies, international availability is still tight.

Buyers complain about prices but willing to pay amid short supply

Massive stimulus measures across the world never seen before have exerted pressure on the US dollar, boosting commodities and assets. The market is out of kilter: however, no one will complain about volumes, though consumers and buyers have been complaining about prices. Nevertheless, they are still willing to pay in order to buy in steel under the prevailing conditions of short supply.

High spread between raw material and steel prices will stimulate higher production

The spread between reinforcing bar and wire rod prices is probably at its highest level ever. We are also observing the highest spread between raw material and steel product prices for years, which will surely motivate steel producers to ramp up production.

Focus likely to remain on scrap markets in the coming years

It seems that everything is evolving around scrap, which looks like being a leading focal point in the coming years, which may lead more Chinese capital into the scrap business. The rapid increase in scrap prices and the rise in demand before the holidays will keep everyone busy for the next few months.

China seeks to speed up steel industry conversion towards scrap-based production

The Chinese steel industry wants to speed up its conversion towards scrap-based production. Imported scrap may cool off domestic scrap pricing in China and may also bring in higher quality material which is hard to find domestically. Up to now, Chinese domestic scrap was priced much higher than scrap in the international markets. The markets will probably balance out and rewrite the logical trade routes back to how they looked some years ago. Japanese and some US West Coast scrap will be redirected to China instead of South Asia. Of course, the Chinese mills will not import if overseas scrap is more expensive than domestic material.

Scrap prices may be buoyed up by recent developments in Russia, China and US

Mills in the EU and the US will probably have to find new strategies for the time when there will be more competition for their domestic scrap. Will they force their governments to take action on scrap exports as the Russians have done, which is clearly against WTO rules?  Russia’s revision of the minimum tax on scrap exports, China’s lifting of the scrap duties on imports and the healthy local market in the US may very well keep scrap prices up.

Supply problematic in US market, buyers increasingly cautious

Demand in the US market is the same or a little down, as is expected during the winter months, but supply is problematic. Most exporting mills are fully booked and their next allocations are for arrival in the second quarter at best. Since import offers in the market are now for arrival four to six months later, customers are reluctant to make decisions so far forward especially at the current high price levels. They are opting instead to buy domestically only one week at a time. Now the worry is about possible cancellations when prices come down from such high levels.

Steel production picks up in Europe and the Americas

As the world is reawakening, domestic steel production is also much stronger in Europe and the Americas. Stronger levels are expected over the next quarter. Industrial demand is also picking up.

Vaccines hold out hope for return to normality

With everyone weary of the pandemic and the restrictions which have been holding us hostages in our homes, we are all eager to get out on the street and to start spending even before the summer arrives. Hopefully, the vaccines will help us get back to normal. Emerging from the pandemic and beginning to look at where new opportunities will arise will surely boost economies and employment figures should increase.

Competition varies across markets, prices unstable at high levels

Competition among suppliers in the markets has lately ranged between reasonable levels to being almost nonexistent. The current market situation can be described as stable. The volumes in the market are fine, but market prices are unstable at lofty levels.

Outlook satisfactory for first quarter at least, unclear for second quarter

The outlook for the next quarter is satisfactory, but the situation in the markets in the second quarter will depend on many factors that are as yet unknown. Prices may drop down any time for any good reason and developments after the Chinese New Year may be important. The fact that the incoming US administration is planning to put more funds into infrastructure is positive, but the effects of such action may only be observed from the second half of 2021. When prices are as high as they currently are, the next vital factor is management when the correction actually happens.




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