Short Range Outlook : May 2021

Global longs producers hold whip hand amid strong demand, short supply, rising prices

Demand in the global long steel products market has continued to increase recently, and particularly demand in China and developed economies continues to push the market up. At the same time, international supply has tightened even further. Most mills are offering a few months ahead, thereby contributing to upward movement of prices. There are imbalances in rebar supply-demand, but it looks like customers are resigned to accepting the continuing price increases. The spreads on production have increased overall.

Strong demand and short supply in EU, construction companies squeezed by high prices

Demand in the EU remains strong, but the market is short of steel. Construction companies have tried to push cut and benders down on price by holding back orders but are now with their backs to the wall and have to place orders at much higher prices compared to their budgets. Most European cut and benders hold very toxic order books, with sales being approximately €200-300 per metric ton below replacement costs. EU mills could easily increase prices significantly as there is no available alternative for benders. Imports are not competitive, and quotas have been fully used up. Rebar prices compared to HRC prices are completely out of line.

Prices at record highs in US, domestic producers in control, credit an issue for customers

The North American market is also short of steel. In the US, demand is way up, but to ensure supply is far more difficult. The order books of all domestic mills are full, with order deliveries extending up to four to eight weeks. Imports are even harder to ship, as international mills are even busier. Besides, shipping is a big challenge, with more delays at double or triple the costs. Prices are at historic highs, making credit decisions even harder. Almost all customers have maxed out their credit limits with double the prices on most items. In short, the situation is most advantageous to domestic producers who are working at near full capacity, but traders have difficulty in supplying and/or financing the growing demand. Inflation in most commodities is around the corner. While both the US and the EU are short of steel and still have their protectionist measures in place, it seems that this situation will continue for a while yet.

Chinese production surges, its semis imports provide boost for global prices

China continues to roar ahead, now surpassing three million metric tons of liquid steel production per day. Despite the surge in Chinese steel production in the first and second quarters, China keeps importing semi-finished material, which has pushed up prices in the global market.  At the end of April, China announced the cancellation of the tax rebates on exports and, as a result, it most probably will not be exporting in the near future. This will open new opportunities for other market players like Turkey to increase their exports. Such recent decisions in China should result in pressure pushing prices up even more.

Iron ore prices rising, Asian market back to pre-Covid levels except for India

Iron ore prices are heading higher and the Asian market is fully back to pre-Covid levels, except for India whose steel output and scrap imports are expected to be negatively impacted.

Turkey remains an exception to the positive global longs demand situation

Demand for long steel products globally is good except in Turkey due to the high interest rates there. However, highest-ever prices are being experienced in the flat steel segment worldwide.

Demand increases even further in Latin America

Latin America is no exception in the global market. Supply is tightening and demand is increasing even further. Brazil is deciding to export less due to domestic demand. With further improvements in the vaccination process in Latin America, an increase is also expected in the demand scenario, which is already at a good level. Domestic sales continue to improve in the region, with higher volumes compared to the pre-pandemic period.

Lead times extended, entire supply chain is earning profits

Lead times are long in the market and the entire supply chain is earning profits. Disrupted supply chains and low stocks create pockets of demand in different areas of the world, which keep driving the market up. Stimulus programs also help increase demand. Although there has been news of more capacities coming back on stream, it seems the current situation will continue for the rest of the year.

Vaccinations and summer season to support return to normal, boosting demand

The global business environment is getting better with the increased distribution of vaccines, especially where they have been administered at rates exceeding 30 percent. Vaccinations and the summer season will help most countries resume a normal form of life, which in turn would support demand.

Credit insurance becomes an issue for buyers as prices continue to rise

Shipping is still the biggest challenge. Besides shipping, credit insurance is decreasing in volume as prices go higher. So far, steel mill customers have been able to find ways to circumvent this, but it remains an issue for the future. Another issue is that lead times are shrinking in the US market for ‘nice orders’. On the other hand, geopolitical winds may cause changes in the landscape.

Competition is healthy, outlook for next quarter is very good

Competition in the market is healthy but demand is sufficient for everyone. Accordingly, there is no concern about competition in general. The current status of the market is perfect to proceed with a very good outlook for the next quarter.




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