The situation in the global long steel products market has not changed much since last month. Almost the whole market is driven by daily news and signals from China. It seems that, apart from China, there seems to be a smaller other global market. Buyers and producers are acting more regionally due to the Covid-19 coronavirus pandemic and safeguard measures. The overall market can be described as mostly stable with some fluctuations in certain areas and instability at higher demand and higher prices.

Most mills outside China struggle but supported by H1, fears persist for winter

Most mills outside China are suffering as their production rates and financial results are both down. Having that said, mills are still positive based on what they have had during the first half of the year. On the other hand, there is huge uncertainty regarding what the winter may bring as a second wave of the pandemic seems to be around the corner.

Regional markets are performing well despite greater uncertainty

With the ongoing political uncertainties and new threats from many corners around the globe, the overall market situation is becoming cloudy and more uncertain. Despite all these developments, regional markets are performing well and prices are firming up.

Demand returns in Europe

Demand has returned in Europe. Cut and benders are very busy and so far a relatively low number of projects are on hold. But the biggest problem for European cut and benders is that they took in too many orders at low prices earlier this year during the worst period of the coronavirus – expecting prices to collapse – and are now confronted with stable to rising prices due to increasing raw material costs. Accordingly, demand is strong, supply is getting tighter and expectations of further price rises are more widespread now.

Demand recovers in North America, despite fears of second wave of Covid-19

Demand in North America is also back and US prices finally moved up following the raw material price increases. Since import prices have risen even higher, the situation in favor of US domestic mills has not changed. On the other hand, further increases are not expected as a second wave of the pandemic (or a continuation of the first one) appears to be on the doorstep.

Brazilian steel sector’s operational results down in Jan-July, but some recovery seen

Brazil’s steel production, though recovering from the previous lows during the coronavirus crisis, was still much lower in the January-July period this year than in the same period last year. In January-July of the current year, Brazil’s crude steel production amounted to 17.1 million mt, down 13.9 percent year on year. Brazilian outputs of semis and finished steel products in the given period respectively dropped by 9.3 percent to 4.8 million mt and by 13 percent to 11.7 million mt, year on year. Currently, the sector is operating at 60.5 percent of its total capacity compared to 48.5 percent in June, with a growing number of blast furnaces resuming operations. Apparent consumption fell by 8.2 percent to 11.2 million mt in the first seven months this year amid a 7.6 percent drop in domestic sales (10 million mt) and an 18.5 percent decline in imports (1.2 million mt). Exports fell by 8.7 percent to seven million mt. The Brazilian steel association (IABr) believes that the only way to improve operating rates for Brazilian steel producers is to try to increase exports, but this will be very difficult for them because of excess capacity and protectionist measures.

Period of strong recovery currently observed

After a poor spring characterized by the idling of production capacities due to the coronavirus pandemic, we are currently in a period of strong recovery. Economies are opening up, production is ramping up towards normal levels and demand is strong from most parts of the world simultaneously. Regional demand has been recovering and business is returning. Inventories in the supply chain need to be replenished.

China is driving the rebound

The very strong quarter seen in China and the current outlook supported by the country’s net importation of steel products have been driving the rebound. Investment activities and stimulus measures in China are positive for the long steel product segment. The country is showing strong domestic demand and is not in the mood to export. It became a net importer in June, maintained this trend in July and will probably also do so in August. With what China is consuming, the rest of the world feels the positive effects.

European and US service centers hold low stocks, replenishment pushes up deal prices

Service centers in Europe and the US have been low on stocks and, with any sign of an uptick, those stocks are being replenished with higher transaction prices resulting. The increase in prices that has followed the rise in raw material prices is positive for those who have sufficient stocks for September.

Producers need to be careful not to relaunch too much idled capacity

The key here is that steel producers should not be misled by the current demand into firing up more of their furnaces, which could exert more supply pressure on the market during winter.

Competition remains intense, particularly in Asia

Competition in the market is still high and intense particularly in Asia where price changes of US$1/mt can swing the focus of buyers to supplies of a different origin. Regional demand is strong in Latin America. At present, China is buying almost whatever is available in the market as far as raw materials and semis are concerned, which eases the competition overall.

Outlook generally satisfactory but many unknowns due to the pandemic

Although the outlook for the next quarter is generally satisfactory, there are a lot of unknowns due to the pandemic which make the outlook a bit misty and foggy.

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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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