Short Range Outlook : December 2021

Demand slows in global longs market, higher costs to reduce price erosion

Demand is slowing down in the global long steel products market as we have entered the slow season in the northern hemisphere and the holidays are approaching. Market activity may remain slow until the Chinese New Year holidays and so we may see further price erosion in the coming weeks. However, such erosion should be limited due to higher costs of production. There is an energy shortage, and the cost of energy is higher. Moreover, since steel production is already at pre-pandemic levels and since that keeps alloying elements, refractories and electrodes all at high prices, this will be another supporting factor for higher costs of steel compared to the same period last year, preventing any sharp drops in prices of steel. Higher freight rates are also supporting higher steel prices in the international market.

Shift to volumes observed in international and domestic markets

Steel supplied to consumers and customers worldwide in 2021 has been determined by availability and price. Nowadays, there has started to be a shift to volumes in the international market and to a large extent also in domestic markets.

Blast furnaces gain further advantage over EAFs with lower iron ore and coking coal prices

As mentioned, energy costs are increasing everywhere, but coking coal prices have started their retreat. With relatively low iron ore prices and the downward movement of coking coal prices, integrated blast furnace-based producers have gained an even greater advantage over the scrap-fed EAF industry.

Lack of clarity on supply chain logistics adds to uncertainty in some regions

Contract pricing in the EU, South Korea/Japan and North America is still being discussed in a weaker market.  Contract tons, even at very attractive prices, are being returned to producers due to the lack of clarity in relation to supply chain logistics and chip shortages.

Demand also slows in EU, mills to use holiday period to limit supply pressure

Demand is also slowing down in the EU market due to seasonal factors. However, many buyers booked their last orders for the year in the latter part of November. It looks like the EU mills are done for the year and some of them will use the holiday period for revamping and additional extraordinary holidays, which will remove any supply pressure from the market. Imports are not a threat to the EU mills, while on the other hand the tariff quota agreement with the US and respective export options may lift prices further.

Good scrap demand in Europe, winter conditions impact scrap flows

On the ferrous scrap side, European logistics constraints persist. Demand remains good for the remainder of the year. At the same time, winter conditions are hammering scrap flows in areas of Europe. Energy costs have led to temporary outages at producers in Europe.

Hyperinflation in Turkey impacts trade

The hyperinflation in Turkey, which has been fuelled by a loose monetary policy and the subsequent devaluation of the Turkish lira, has slowed domestic consumption, at least temporarily. Ferrous scrap trade has been shaken up by this during the past few weeks.

Lack of increased exports from China provides important support for global market

China is still not increasing its exports of steel, which is an important supporting factor for the global market.

Mills have enough orders for coming months, demand bolstered by stimulus measures

The cycles of buying are getting shorter, i.e., shorter lead times. This takes a bit of the uncertainty out of the market, which should reduce the dislocation of the futures markets from the spot markets. There is plenty of demand and balanced supply should prevent strong volatility in the market. Mills have enough orders for the next couple of months. Stimulus packages and the availability of low-cost money will support demand. Freight rates seem to have peaked for the time being.

Competition becomes stronger worldwide amid limited export options

Competition in the market is getting stronger as there are not many markets left for exports; however, order books are still satisfactory. There are even some Chinese origin offers appearing in the market. Overall, the level of competition depends on the region.

Omicron virus variant raises concerns, US agrees with EU on quotas

The US dollar has strengthened, while fears surrounding the Omicron variant have dealt a blow to the prospects for reopening during the winter months. There may be lower prices and shorter lead times in the market.  The US has already agreed with the EU on quotas. Agreements with Japan and South Korea are expected to be finalized soon. The UK, Norway and Iceland are next in line.

Markets generally stable despite some fluctuations, Q1 outlook mostly stable

The current status of the market is generally stable despite some fluctuations in certain areas. The market is now more volume-driven. The outlook for the first quarter is mostly stable, particularly as no supply pressure is expected.




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