It has become extremely difficult to predict the supply and demand situation in the global long steel products market. The  impact of the Covid-19 coronavirus pandemic on overall economic situations or conditions in countries and regions will be at different levels, which might change the dynamics of steel demand and production separately.

Regionalization of markets being reinforced

We have often talked about how the markets have become regionalized and this trend is now being reinforced. Some regions may see shortages and some others may see surpluses. It will take more time for these to be balanced out, or significant price differences may become persistent as was experienced decades ago.

Some recovery in China, rest of world in earlier phase of lockdown

As the Covid-19 virus has moved from China to the rest of the world, we have observed some disparity between regions. Some rebuilding and stimulus going on in China has propped up pricing and demand. In many parts of the rest of the world, we are in the early or middle stage of the lockdown. This simultaneously affects supply and demand. Some have to stop production due to intricate supply chains being breached during the lockdown periods. Some have lost orders. Most businesses are running at significantly lower rates, if at all.

Lack of coordination in steel capacity stoppages

The stoppages of active steel production capacities are not really being coordinated. Far too much capacity will disappear at the same time in certain regions. It is highly likely that these production capacities will come back to the market in just as quick and uncoordinated a manner.

Negative economic forecast for Brazil, economies in Europe and Turkey also struggle

In Brazil, the oficial forecast for GDP has changed from +2.1 percent to -1.18 percent and the major steel producers are announcing stoppages to balance supply and demand. Steel demand in Brazil may fall 20 percent this year as per the latest forecast by IABR (Instituto Aço Brasil). Likewise, there are many mills announcing stoppages in Europe and in Turkey, where the economies are facing serious challenges.

Raw material prices plummet, supply shrinks, future projections difficult

Oil prices have tumbled as global demand has plummeted. Raw material prices have followed suit. Incoming raw material supply is slowing down fast. Projections are difficult to make. In some cases, demand is still good but raw material needs cannot be filled. This is a very unusual situation. Ferrous scrap availability is significantly lower as industry and trade has been grinding to a halt through the Western world.

Pick-up of activity in China gives some hope to global market

The pick-up in activity after the coronavirus crisis observed in China gives at least some sort of hope to the rest of the world currently in lockdown. China is also showing some recovery in the long steel segment amid strong investment from the government.

Current situation in global longs market clearly unstable

On a separate note, conversion margins are still stable – not large enough, but stable.

However, the current situation in the  global long steel products market can be described as clearly unstable, just like global and regional politics and economies, and like the progress of the virus pandemic.

Focus in Q2 to be on volume survival, some hope for rebound in Q3

Under these circumstances, the second quarter will be one of volume survival, and the fate of the global longs market in the third quarter will be determined by how the virus peaks. There is definitely no reason for economic activity not to rebound once we are past the peak of the virus crisis. All we have to avoid is social unrest.

Q2 to be a low point in pricing and volumes

There will be massive capacity reductions from scrap to billets to long products during the second quarter, on top of the Easter and Ramadan periods and the uncertain evolution of the impact of the coronavirus. The second quarter of 2020 will likely be a low point in pricing and volumes. The main question will be how long after that it will take to return to normality.

Protectionism may be intensified, regionalization to be the norm

Protectionism can be expected to continue and perhaps may be intensified as countries try to put their domestic problems first. Regionalization will be more the norm.

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Unfortunately, the coronavirus outbreak had a negative impact on our 82nd meeting in Belgrade. After the news about the coronavirus cases observed in Italy by late February, many participants due to attend the 82nd IREPAS meeting decided not to travel to Belgrade due to concerns about the developing situation. However, since the circumstances in Belgrade and Serbia did not require or allow any change or alteration of the originally planned event, it was decided that the conference would be held and go ahead as scheduled.

Obviously the major topic of discussions during the meeting was the coronavirus outbreak. The potential impact of the coronavirus on the markets was summarized as follows.

1. Demand in the global iron ore market will return after the initial dramatic slowdown.
2. It was heard that Chinese steel mills have huge unshipped stocks of steel following the outbreak and that Chinese exporters are expecting prices to fall.
3. The first offers of Chinese origin billets to the Mediterranean region have also been heard. Consequently, it is expected that China will return to the export markets.
4. The best-case scenario regarding the impact of the coronavirus is that the world loses business for two months, that the world loses confidence in itself, and most likely China will take a confidence hit of large proportions, while the worst scenario is that the steel industry will be hit like in 2009, as has the stock market just this past week.

On the other hand, the producers at the conference emphasized that currently there is almost zero margin between scrap and rebar and that demand is being affected by both political and economic circumstances and by the virus outbreak. Since margins are where they are, it would seem the market is at an equilibrium near the bottom, unless scrap and iron ore prices fall.

The raw material suppliers pointed out that, while manufacturing seems to be picking up in the western world, short-term pricing trends are pointing in a negative direction due to the current circumstances.

The scrap market is expected to continue to see a volatile period, the raw material suppliers noted. They added that uncertainties and protectionist measures have had impacts and will continue to play a role in pricing going forward.

There is still a surplus of supply and not enough demand in the global long steel products market. The profitability and margins of steel producers vary greatly between regions amid several factors such as the coronavirus outbreak and/or geopolitical issues like recent announcements relating to Israel/Palestine and Libya creating uncertainties for the future.

Full impact of coronavirus in China difficult to predict

Chinese steel production hit 996 million metric tons in 2019, which is 7.4 percent above the previous year, but exports are under control and were “only” 64 million metric tons, around five million metric tons below 2018. Spring is around the corner and China is expected to warm up after the Lunar New Year Holidays. Obviously, nobody is able to make forecasts about stoppages that may result from the coronavirus issue. The effects of the virus may be with us for a month of the Chinese lunar year. China may not be the big steady buyer that most of us in the market thought it was.

Supply increases in US market but its prices are the highest

Demand in the US market is still the same, but supply did expand with the increase of domestic production and more imports from Section 232-exempt countries. Currently, steel product prices are highest in the US, followed next by China, and with the EU in third place but for consumers of significant volumes.

Difficult 2019 for Brazil

Brazil’s steel market had a difficult year in 2019. Apparent consumption in its internal market was 20.6 million metric tons, down 2.7 percent from the previous year. Crude steel production in Brazil in 2019 came to 32.2 million metric tons, declining by 9.0 percent from 2018. Imports totaled 2.4 million metric tons, similar to 2018. Brazilian steel exports in 2019 decreased by 8.1 percent to 12.8 million metric tons due to certain antidumping and countervailing duties in main markets.

Some recovery expected in Brazilian construction sector in 2020

Brazilian slab suppliers are also facing difficulties in exporting to the US because the first quarter quota under Section 232 for semi-finished products was filled on the first day of the year. The Central Bank of Brazil estimates 1.2 percent GDP growth for 2019 and forecasts 2.2 percent growth for 2020. Having said all that, some recovery in the Brazilian construction sector is expected for this year.

EU makes quiet start to year, improvement foreseen compared to H2 2019

The EU market has made a very quiet start to the year, but at the same time everybody is forecasting a better situation compared to the second half 2019. The overcapacities in the EU still prevent prices from going up, even though imports are low as never before since most quotas have been used up and will only again become available from July 1. Importers consider the risk of importing under the “all others” quota to be too big because of the 30 percent restriction on country basis.

Demand varies across EU countries

Some EU countries have robust and good demand, while others do not. Those mills located in the countries with low demand are trying to shift as much as they can to the countries with high demand, which puts downward pressure on domestic mills’ prices. The situation in the EU market is expected to improve in the coming weeks following movements in scrap prices.

Low scrap-to-rebar price spread in Turkey in January, rebar demand still weak

The price spread – scrap to rebar price – of Turkish mills in January this year was the lowest observed since January 2019. In fact, the spread was lower only in January 2017 compared to January 2019. It looks like Turkish producers are trying to widen this spread using all of their muscle. For now, exerting downward pressure on scrap prices seems to be easier than requesting higher sales prices. In the meantime, Turkish mills have implemented more production cuts, which will of course support prices. However, the real issue is demand, which has not yet shown any signs of picking up. Therefore, margins remain low.

Scrap prices going down everywhere despite efforts to the contrary

Scrap prices are going down after attempts to manipulate them. The prices of scrap have been going down even in Asia where China is the driver of the scrap price trend. The European scrap dealers were first to drop prices to Turkey. Such decreases in scrap prices are putting even more pressure on long product prices in Turkey.

Iron ore prices likely to remain high in relation to scrap

Iron ore prices, on the other hand, are still high in relation to scrap and look like they will remain stable at around $80/mt CFR FO China main ports.

Attempts to stimulate growth in various parts of world

In general, the evolution of demand is still positive globally, while the development of the automotive and industrial markets evolution may help to support construction products. There are attempts to stimulate growth in various parts of the world. Moreover, inventory levels at present are moderate.

Positive signs from China, EU and Turkey, warm winter also helps

It is also a big positive to see Chinese steel exports under control. Furthermore, it looks like prices in the EU are slowly recovering and margins for producers are improving. Turkish producers are also trying to increase the spread, which helps the market positively, too. Last but not the least, construction activity has been continuing in the northern hemisphere due to the warm winter and there have been hardly any stoppages.

Coronavirus impacts regional demand, tensions in Middle East also a major concern

On the other hand, the coronavirus situation is a serious concern, reducing demand in China and surrounding regions, thus creating oversupply of steel in the world market. The US presidential impeachment trial and the tensions in the Middle East are also major concerns.

Very high levels of competition in most markets

Competition levels are very high in most markets and may even increase further in the second half of this year, particularly regionally. Competition is only weakening in global trade due to politically-motivated trade actions.

Markets mostly unstable but outlook generally satisfactory except for America

While the current status of the market is considered to be mostly unstable, the outlook is generally satisfactory with the exception of the American market where uncertainties contribute to an unsatisfactory environment.

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