The current environment in the global long steel products market is confusing. The raw material for blast furnaces is becoming cheaper, while ferrous scrap is getting more expensive and we observe increasing prices for both reinforcing bars and hot rolled coils. Customers are making inquiries for longer than they normally should, and mills are incurring greater losses than they can afford and so they are halting production and have stopped offering. However, the current price increase should not hold long because the real problem is demand.

Scrap prices start to move up from bottom levels

There is enough scrap availability and indeed prices in the US domestic market are up by US$20 per gross ton. It looks like ferrous scrap prices internationally have hit the bottom and started to move up again. In general, the supply chain has been very low on scrap inventory, which has meant that restocking has pushed international prices higher.

China drives international prices of many products

China is driving the international prices of basic pig iron, hot briquetted iron (HBI), HRC and billet/slab, thereby realigning flows and supply-demand.

Worrying contraction in Brazil

Steel production in Brazil contracted by 7.3 percent in the first nine months this year, according to the Brazilian Steel Institute (IABr) and Brazilian exports were down 3.0 percent from the same period last year. Market expectations for internal GDP growth in Brazil are for only 0.91 percent in the current year and 2.0 percent in 2020. The situation for Brazilian semi-finished exports is difficult because billet has dropped to its lowest price of the last three years. The US market used to have better prices for slab exporters, but in recent weeks the price has dropped dramatically.

Rise in German industrial activity raises hopes in Europe, but too many uncertainties remain

The situation in Europe is unchanged. Industrial activity bottomed out and then increased in the German market, bringing with it the surrounding areas in Europe. However, there are still too many uncertainties and, with winter approaching, the situation regarding what may happen in the first quarter next year remains unclear. Political tensions and lack of clarity surrounding Brexit continue to be observed and therefore sentiment remains uncertain.

Buying activity in China provides a boost

Chinese buying activity has strengthened the sector as we are heading into the winter period when emissions regulations will be stricter. Internal steel consumption in China is still very high and the country is not increasing its exports. The situation in China looks good at least until the Chinese New Year holidays.

Low interest rates may be supporting factor, only obstacle is low growth expectations

Low interest rates and liquidity may also be supporting factors in the long run. The only obstacle is low growth expectations.

Longs prices should follow scrap prices, EU mills expected to raise prices shortly

Long product prices should move in line with scrap prices which have begun to bottom up. The lack of competitive import options should help EU mills to raise prices shortly. Demand in some EU countries remains strong but has been weakening in others.

Levels of competition in global market remain high

The levels of competition in the global market are still high because of the lack of demand in main markets like Europe and the US. Also, trade tensions and commercial barriers are increasing around the world, reducing options for exporters. Overcapacities are preventing prices from bouncing back. Indian, Turkish, Russian, Brazilian and Southeast Asian suppliers are competing for every dollar in China. Agreements in China-US trade talks could bring a little breather.

Regionalization of trade continues, nervous supply chain reacts with sharper price spikes

Freights are being impacted by the IMO 2020 regulation, meaning long-distance shipments will be more expensive. Accordingly, regionalization of trade continues. Lead times are very short and no one wants to hold unnecessary inventory. The nervous supply chain therefore reacts with sharper price spikes.

Market outlook is challenging

The ferrous scrap market has seen a fairly decent rebound and solid demand with balanced availability. The markets have been stable for the last week or ten days. But the future is uncertain as the outlook is not good because of the lack of demand and of price levels. The market outlook can be described as challenging.

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There has been no significant change in the global long steel products market compared to last month in terms of supply and demand balance. Demand remains relatively weak, but we have seen better discipline on the supply side, which has had a positive impact on pricing dynamics. Demand is expected to pick up in the coming weeks. Economic numbers are strong and most fears regarding Brexit, the American election or European Union problems are disappearing. All of these factors have helped the year to finish with positive sentiment for 2017 and a better forecast for demand, particularly in the US and EU markets.

Market expected to maintain its strength after the holiday

In December, after some hesitation, buyers in the global long steel market understood that the fundamentals of demand and raw materials dynamics were pushing up long product price levels. Subsequently, buyers completed a last round of purchases before going on holiday, in the belief that the market will stay strong after the break.

Long product pricing has not changed very much during past 30 days

While demand was rather slow during the holiday season, actual pricing has not changed very much during the past 30 days. The big swings have come in China, but these swings seem to be rebalancing themselves after the fluctuations in the volatile futures markets.

Chinese steel exports to continue to decline, increasing opportunities for others

Trade is becoming more regional as China’s excess output is capped due in part to capacity cuts, greater domestic consumption and trade limitations, which is good news for the capacity utilization rates of steel operations elsewhere. Manufacturing PMIs are rising in Asia, the US and Europe. There are expectations that Chinese steel export volumes will continue to be reduced, which will increase trade opportunities for others. In this context, after so many years the first reinforcing bar export contracts for shipment to the Far East were concluded by Turkish suppliers.

Scrap becomes a more attractive raw material

Ferrous scrap has become a more attractive raw material as the share of steel output outside of China is rising and since virgin raw material costs have continued to remain at inflated prices. Demand for scrap has risen in integrated steel production.

Trading conditions fundamentally stronger compared to a year ago

Positive sentiment continues to be observed in the global long steel products market and, for a few reasons, a better supply and demand balance seems to be contributing to an improvement in trading conditions, which definitely benefits market players as China seems to be out of the picture now. Regional changes are not affecting the global market much. There is again optimism in trade, with current conditions fundamentally stronger than conditions a year ago.

Improvements anticipated both in US and EU

Consumption in the US is expected to rise higher. That said, it may come with severe limitations on imports. Conditions in the EU market are also expected to be better. Raw material price increases and the trade cases against companies and countries with non-market practices are also helping the market to protect its strength. New dumping cases will almost certainly have an additional impact. On the other hand, we have seen metcoal prices coming down significantly but not having an impact on the market. The general mood for 2017 is certainly better than 2016.

Some uncertainties remain; Turkey holds its ground in rebar exports

Only the political environment and uncertainty about what is going to happen after January 20 may cause concerns. The weakening of the euro, the financial situation in Italy, Brexit and the upcoming election in Germany still pose some question marks. Growing protectionism, like the recently-initiated antidumping and CVD case by Egypt is also a concern. Nevertheless, Turkey has achieved the same total rebar export figure as in 2014 and 2015 despite all trade actions in 2016. The same figure is also expected to be achieved in 2017.

Production increases in Western world may contribute to greater competition

Competition in the market is still intense, but seems to be more reasonable due to a better supply and demand balance thanks to demand improvements, as well as being fairer due to trading cases. However, we might see more competition than in the last quarter of 2016 due to the tendency towards production increases in the Western world.

Supply-demand balance is vital to support workable prices

Price increases may have stalled in the market for the time being. Any further increases may face more downward pressure. Accordingly, the equilibrium of demand and supply is vital in order to support workable prices for both producers and consumers.

Stability generally prevails in market at present

The current status of the market is stable and bodes well for the future despite some fluctuations in certain regions.

Satisfactory outlook for coming quarter

The outlook for the coming quarter is satisfactory despite some uncertainties. A strengthened US dollar will add to dollar debt costs in emerging markets, but it will also add to US purchasing power and should boost importation into the US, especially of goods such as long steel products. Raw material costs have also been increasing as well as the demand. Steel prices need to rise significantly in the first quarter.

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On the last day of the conference, producers of long steel products and steel billets, as well as traders and raw material suppliers, shared the conclusions reached at their special committee meetings regarding the current situation in the markets with the general participants at the event.

Raw Material Suppliers at IREPAS: Scrap demand will return within a few months

Jens Björkman, the chairman of the IREPAS Raw Material Suppliers Committee, said that iron ore pricing has been more stable lately. He added that the slowing growth in China is increasing pressure on capacity utilization and is also weighing on steel prices. Having that said, the raw material suppliers believe that the market is in a better position in terms of exports from China.

Regarding the scrap market, the raw material suppliers committee’s findings indicate a relatively stable market and the committee expects demand to return within a few months. Mr. Björkman said that scrap inflow in the Western world, namely, in the EU and the US, is down by around 20 percent this year compared to 2015, thereby affecting the profitability of recyclers. He also stated that the high value of the US dollar is putting pressure on dollar-based scrap pricing, while US domestic demand has dropped and this is the main factor causing the decline in scrap prices.

Commenting on the international trade, the IREPAS Raw Material Suppliers Committee chairman said that Brexit resulted in the weakening of the pound, which opened the way for more exports coming from the UK. On the other hand, Turkish scrap trade has lately become more based on prompt shipments, while Russian scrap exports have declined sharply since domestic demand in Russia has improved. He also stated that the financing of the scrap trade is better in Russia, while, in the case of Turkey, banks were hesitant in the immediate aftermath of the coup attempt in July this year. He also commented that the recent rating downgrades for Turkey might impact financing as well. Mr. Björkman stressed that, with the last quarter of the year just around the corner, many suppliers are not interested in holding stocks.

In answer to a question on Ukraine’s scrap export tax,  Mr. Björkman said that exports from the country have diminished and the supply from the Baltic region has compensated for the loss of supply in some regions, adding that Turkey might need to book larger deep sea cargoes and this would mean a riskier operation for the Turkish steel industry.

Traders at IREPAS: Possible antidumping duty on Turkish rebar imports into the US is likely to increase pressure on prices

Representing the IREPAS Traders Committee, Wilhelm Alff from Duferco affirmed that traders are also concerned by the recent antidumping filing by the US-based rebar producers, pointing out that the quantities of imports are much higher compared to the previous filings. The traders committee expressed the view that Turkey has to find an arrangement with the US administration to continue rebar exports, otherwise “they need to find a new home which will increase pressure on market pricing”, said Mr. Alff. He also stated that the reason the US rebar importers choose Turkey as a supply source is not only price; he said that, besides being competitive in pricing, Turkey is also capable of meeting every specific type of requirement the US reinforcing bar market needs, which most other suppliers are not able to do.

Commenting on China, the IREPAS Traders Committee chairman said that capacity reduction is not everything; the bigger problem is the excess production which is creating a huge disturbance in the market. He stated that closing the mills is a very political issue; the potential loss of employment as a result of the closures will create a headache for the administration. The committee chairman also indicated that, even if China is granted market economy status, it will not change a lot for the industry except for trade cases which becomes more difficult for applicants.

Answering a question on whether the failed coup attempt in Turkey has had any effect on business, Mr. Alff said that he has not experienced any doubts on the customers’ side regarding Turkish supply, other than concerns about deliveries within a few days of the coup attempt; otherwise, it has been business as usual.

Steel Producers at IREPAS: Market conditions are more stable

Murat Cebecioglu, the chairman of IREPAS and also of the IREPAS Producers Committee, commented that in general the market conditions are more stable compared to previous years, while market players from the GCC countries are a little bit more optimistic than their EU counterparts. “Things are improving slowly but surely,” he added.

Mr. Cebecioglu said that trade protectionism is a significant issue for export-dependent countries, since competition is getting tougher and the pressure on exporters is increasing. He expressed the belief that export destinations will become limited and producers will have to find new places to sell their products. He also commented on the US antidumping filing on rebar imports, recalling that three years ago the same trade case resulted in zero margins. He went on to say that this time it is political, adding that the petitioners always change the method by which they calculate margins; however, he still expects the US producers’ coalition to come up empty-handed. He said he is confident that his company does not sell dumped goods to the US, while also stressing that the Turkish industry is certainly not subsidized.

In answer to a question regarding the granting of market economy status to China, the IREPAS Producers Committee chairman said that the decision makers have to think twice, adding that, if China is granted market economy status, trade measures will become more difficult. Mr. Cebecioglu stated that he considers it is too early to talk about the effects of Brexit in terms of international trade, but he hinted that Turkish mills might benefit from it.

The global long steel products market has seen some stability over the last few weeks as the increase in Chinese origin offer prices halted the weakening of global long product prices. The spread between Chinese and Turkish origin reinforcing bar prices has narrowed significantly and is becoming even narrower. Likewise, the price spread between the most expensive FOB or ex-works reinforcing bar price in the market and the cheapest available is also getting smaller.

Not much change in terms of supply and demand

That said, there is not much change in terms of supply and demand in the market. Demand may have been reduced slightly due to the higher level of uncertainty in the marketplace. While producers are still trying to protect their share in their traditional markets, customers in many major markets, like the Americas, the EU or the Middle East, are still very cautious about placing orders. Local producers are keeping the pressure on buyers in these markets by making quick changes in their pricing.

Saga of “billet to roll or scrap to melt” continues

The saga of “billet to roll or scrap to melt” continues on one side for the scrap-based steel producers, and the BOF steel cost pressure on the other. Under such circumstances, Turkey had four different countries of origin (Russia, Ukraine, China and Iran) which supplied more than 100,000 metric tons of billet in July.

No slowdown in China’s output and steel exports

Neither China’s steel output nor the the volumes of steel exports from China have actually slowed down. The ability to export is being squeezed in general in the global market after all the protectionist measures introduced which have impacted not only Chinese and Russian exports but all other exports as well. Some producers will suffer and some will gain new opportunities. As such, the situation will lead to a structural change in the global marketplace.

Chinese suppliers show reduced appetite for competition with Russian prices

Since the Russian suppliers still have the greatest interest in exports and the lowest costs in the market, all the others will have to adapt by lowering their prices. It seems that the Chinese suppliers have a reduced appetite for competition with Russian prices in the market. The recent increase in Chinese origin offer prices has even led to a positive sentiment in some markets that certain upside adjustments, paticularly in ferrous scrap quotations, might happen which would force all prices up.

Solid scrap demand anticipated for month after summer holidays

Stretched-out order books at steelmakers have meant that scrap demand is solid for the coming month after the summer holidays. The strengthened US dollar has been putting pressure on dollar pricing and may continue to do so as the US Federal Reserve continues to prepare the markets for another interest rate hike later this year.

Producers in West still taking extreme care to adapt output to real demand

The industry needs to appear more atractive to investors and lenders everywhere, and so actions to accomodate capacity to real demand are still happening and will continue in the future. The spike in March and April has not resulted in a jump in the production figures of Western steel producers. Producers were extremely careful about keeping supply at a certain level. They still maintain a similar position nowadays and subsequently there is no pressure on prices in the Western world. Obviously, as more Chinese origin steel stays at home and in Asia, Chinese prices for reinforcing bars and wire rods have a lesser influence on American, European and most MENA markets. Another positive for the market is that demand in Russia also seems to be improving.

Competition still at high levels in global market

However, competition in the global market is still at high levels due to limited markets and pressure from local producers. Canada has become another market closed to some imports for a while. The balancing out of markets will mean that nearby markets will become increasingly competitive. The Russian and Asian mills are looking for homologations in order to find new markets, which will increase the pressure on established suppliers.

Market in better position at start of last quarter compared to previous years

The last quarter of the year is always very challenging. But the market is in a better position at the start of the last quarter this year compared to previous years. There is a possibility of winter restocking following the slow buying activity during Ramadan and the summer holidays and due to the Brexit vote. Of course, the situation is still fragile, always depending on the Chinese movements. There could be downward pressure on prices depending on supply. Right now, the prevailing sentiment is that we will see some further stability in the next few weeks

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The global long steel products market has been going through a volatile period since March this year. Volatility in pricing has led to swings in availability of both steel and steel scrap, and this continues to be a challenge for the business environment. With low inventories in general throughout the supply chain comes larger pricing swings.

Mills currently searching for new orders for post-holiday period

Due to competitive price levels in some areas, restocking took place a few months ago and brought significant demand – which had previously been delayed – back to the market. In return, prices went up and pressurized those who had not bought at the time and so even more demand emerged. However, it now seems that most urgent demand needs have been met and mills are currently searching for new orders for the post-holiday period.

Short lead times preferred; both buyers and sellers expect market to rebound soon

The northern hemisphere has entered the summer lull, with reduced activity for both buyers and sellers. This has caused decisions on relevant volumes being postponed for a few weeks. Stocks in the system are not at high levels and so purchases to replenish stocks need to continue. In this situation, short lead times are a requirement and so supply from neighboring regional sources is the first option. Even with the most recent price decreases, the sentiment in the market is not too negative and both buyers and sellers expect the market to rebound soon.

US and EU markets to see greater stability due to protectionist measures

The US and EU markets will remain relatively more stable after all their protectionist measures. Ongoing firm pricing is observed in North America. It looks like a gradual decline in prices may have started in the larger EU market, but this may not mean reduced margins for producers as input costs are down.

Turkey waiting for improvement though markets likely to be more challenging

Turkey is waiting for any uptick, from wherever it will come. Many markets are not ordering as many tons as they used to. The Far Eastern and Middle Eastern markets are expected to be more challenging.

Production adjustments contribute to more balanced market

After shutdowns and production adjustments, some markets are showing improved equilibrium, but more needs to be done. The market is more balanced than before, but unfortunately is still far from being balanced.

Some positive signs from China but outlook still negative

There are positive signs from China such as production cutbacks, environmental policies and relatively smaller-than-normal amounts of inventory, though the outlook still remains negative. There are fewer export destinations and many closed markets.

China expected to take serious steps to eliminate pressure on global market

China is expected to take serious steps to eliminate the pressure they have created on the global long steel products market. There are continuing signals from China of capacity reduction through mergers of steel assets.

Price upticks in China a positive for the global market

Stocks in China are still relatively low and domestic prices have started to rise with a similar trend for Chinese export prices. In addition, the iron ore price seems to be stable at above US$50/mt CFR FO main Chinese ports, which is a positive for the market outlook.

Brexit result still has to be digested

On a separate note, the Brexit result in the UK still has to be digested and it is really difficult to foresee the consequences yet. The political uncertainty does not really help to stimulate economies throughout the EU. However, so far we have not seen any collapses due to Brexit.

Levels of competition not as strong as they have been

Pricing cuts have redistributed demand to a broader scope, bettering the fundamentals going forward. As a result, competition in the market is still high in general but reasonable in some areas. Overall, it is less than at any time over the last twelve months or so. Domestic markets continue to buy domestic products and mills in North America and the EU are fairly well booked through August. However, competition will be serious in the coming months.

Satisfactory short-term outlook for North America and EU but greater concerns for rest of world

The global long steel products market is still fluctuating and remains unstable. The short-term outlook is satisfactory for the North American and EU markets. However, it is still worrying for the rest of the world as uncertainty continues in an unpredictable market.

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