There have been no signs of improvement in the global long steel products market. On the contrary, the current business environment has, unfortunately, deteriorated rather than improved in terms of the supply and demand balance. The wars, particularly in Iran and Ukraine, have significantly exacerbated existing disruptions across global supply chains. What we have seen looks more like a supply-side shock than a demand recovery: higher energy, electricity and freight costs have pushed prices upward, and these increases have so far been widely accepted by customers as inevitable.

Many economies would enter recessionary territory if ceasefire in Iran war fails to hold

So much will depend on whether the ceasefire just announced in the Iran war will hold. If it does not hold and should energy prices remain elevated, there would a substantial risk that many economies will enter recessionary territory, with wide-ranging and potentially severe consequences. Transportation costs have already risen considerably, while uncertainty surrounding future demand has increased across all major markets. At the same time, there is a noticeable shift toward greater protectionism, further complicating international trade dynamics.

US scrap export volumes decline, UK shifts to containerized scrap exports to Turkey

US ferrous scrap export volumes are in decline due to more domestic consumption and difficult prices in Asian markets, while the UK is shifting to containerized exports to Turkey.

On the bright side, increased pre-ordering and restocking activity observed

Despite the prevailing challenges, there are some positive aspects in the global market. Heightened uncertainty is prompting contractors involved in confirmed construction projects to secure supply in advance, leading to increased pre-ordering in order to mitigate the risk of further cost escalations. Additionally, in an inflationary environment, apparent demand often exceeds actual demand, as businesses tend to build up inventories as a precautionary measure. This dynamic is likely to result in a degree of restocking activity, providing short-term support to market demand.

Three distinct regional dynamics seen in competition in global market

Three distinct regional market dynamics can be identified in terms of the level of competition in the global market, which remains high, though it varies across regions. Broadly speaking, in the United States, competition is largely domestic, with local producers competing primarily within the internal market. In the European Union, the landscape is more mixed, characterized by intense domestic competition alongside a limited presence of imports from third countries. In contrast, in the rest of the world, competition is significantly more intense, with global players actively competing across multiple markets.

Rising costs of energy exerting pressure across the industry

At the same time, rising energy costs – particularly impacting steel producers – along with increasing scrap prices driven by higher oil and transportation costs, have exerted additional pressure across the industry. These factors are contributing to heightened competition globally, as producers strive to maintain margins and market share in an increasingly challenging cost environment. The market has accepted cost-driven price increases up to a certain degree. The uncertainty is in the second-order consequences. As with any supply-side shock, the market may have to rebuild around new supply routes, new energy costs and changing raw material availability, and it is still too early to judge how the wider economy will react. It will be necessary to wait and see what impact the ceasefire in the Iran war – provided it holds – will have on easing the surges in costs and if it will bring about a badly-needed return to something approaching normality for business and trade.

Current market environment very unstable, dependent on US war-related policy decisions

The current market environment can be best described as highly unstable and deeply influenced by geopolitical developments. In particular, the global economy has been increasingly dependent on policy decisions made by the United States administration in relation to the war against Iran, though some hope is now offered by the implementation of the ceasefire. Recent developments have intensified market volatility, with rising energy prices, supply chain disruptions and inflationary pressures creating a highly uncertain outlook.  In this context, market conditions remain fragile and unpredictable, with future stability largely contingent on geopolitical outcomes and policy direction in the coming months.

Outlook for next quarter remains uncertain

The outlook for the next quarter remains uncertain, primarily due to the geopolitical tensions in the Middle East. Market direction will largely depend on how the situation evolves in the near term.

If the ceasefire holds…

Should the ceasefire hold, an improvement in demand can be expected, leading to a more positive outlook and gradual market stabilization. However, were the ceasefire to break down and war to be renewed, the risk of a significant economic slowdown will increase. In such a scenario, many economies could enter recessionary conditions, with potential project delays or cancellations and an overall challenging business environment. Other than the military-industrial complex, all other industrial sectors would be negatively affected.

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Due the war in the Middle East, levels of uncertainty have surged in the global long steel products market. Energy prices are flying high, supply chains have been disrupted, bunker oil and freight rates are up and stocks are down. It is too early to predict the overall impact of the war. While concerns regarding deliveries of cargoes originating from regions in the East have helped push prices up in the Western markets, demand is not improving, which comes as no surprise especially when we have no clue about how long this war will continue or to what extent it might spread. Another major question is what will happen to scrap prices.

Investments to be put on hold, no panic purchases despite EU mills’ price hikes

Investments will be put on hold given the high levels of uncertainty all around. EU mills have reacted with price increases but, as the market is still waking up after the winter season, this has not resulted in panic purchases.

Imports into EU risky amid lack of regulatory clarity

Brussels’ incompetence or unwillingness to announce final CBAM regulations and how safeguard measures will be continued after June 2026 makes imports into the EU extremely risky.

Turkish mills face slow local and export demand, adjust capacity usage accordingly

In Turkey, construction activity is slow and exports are down by 20 percent compared to the same period last year. Mills are adjusting their production based on the demand they receive.

US Supreme Court gives some breathing space to importers, but new tariffs likely

The Supreme Court decision in the US against Trump’s tariffs gives a partial breather to importers. However, it will probably not be long before new tariffs will be implemented under different names.

Current market status unstable, outlook unpredictable

It is very difficult to talk about competition under the current levels of protectionism, geopolitical issues and uncertainty in the market. Under the current overall market circumstances, the current status of the market can be described as unstable with an unpredictable and unstable outlook.

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At the opening of the conference, Murat Cebecioglu, chairman of IREPAS, emphasized that the global long products market has recently been suffering from declining imports and exports and a lack of supply-demand balance.

The IREPAS chairman said the reduced production levels in 2022 have been carried over into 2023 and are able to satisfy actual consumption, which has resulted in an aversion to imported steel due to the lack of certainty, leading to a decline in the scope of international business.

On the last day of the conference, producers of long steel products, 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: Output cuts in EU to bring down scrap prices

Jens Björkman, the chairman of the raw material suppliers committee, summarized the committee meeting findings stating that the past few months have been challenging for the global steel market due to drastic price drops, higher energy prices and weak global demand.

Mr. Björkman pointed out that the energy crisis in the EU has eased, going back to pre-war levels and standing at a 10-year average, though high interest rates still remain a challenge. He said that there is a likelihood of production cuts ahead of the summer, which would bring down scrap prices and orders in the EU.

Regarding the potential consequences of the European Parliament’s recent revision of its Waste Shipment Regulation, Mr. Björkman stated that scrap shipments to non-OECD countries will be a major challenge, fortunately Turkey – which is a major destination for scrap supply – will not be affected. In addition, the committee chairman noted that within a five-year timeframe the EU will consume most of the scrap generated in the region itself since its steel production will shift to electric arc furnaces within the scope of green steel targets.

Aside from multiple challenges, Turkey is facing muted trade activities ahead of the approaching elections amid production cuts and weak demand for finished steel products, the committee chairman stated. He went on to say that once the election period is over Turkey is likely to see some pick-up in domestic business, though the demand in the local market will not be sufficient and so Turkey will have to try to export again. Regarding Turkey’s scrap demand, the committee chairman said that “a slower normal demand” is expected in the coming months.

Traders at IREPAS: Rough times for long steel industry         

Wilhelm Alff, chairman of the traders committee, said that the steel industry, especially the Turkish long steel industry, is going through very rough times amid weak domestic markets, high energy costs, a lot of trade cases, and new competition in the form of new players in the market such as Iran, India, China, the Middle East and Africa. Commenting on the Turkish market situation, the committee chairman said that areas which were previously reachable for Turkish long steel products are now getting less and less so, due to greater competition. He also drew attention to the fact that, as of March 31, Turkey had only used less than five percent of its EU rebar import quota, because of the reduction in EU steel demand and the increasing number of new mills in the region, for instance, the competitive offers from Oman and Egypt. He went on to say that, with the current market prices in the EU, which have been on a drastic downtrend since October last year and are at levels almost equal to import prices, buyers prefer domestic sourcing rather than waiting for late arrivals. The traders committee predicted that the EU quota situation will continue like this for at least another quarter.

Looking at China, Mr. Alff said that China’s tightening of its controls on overcapacity is likely to have a significant effect on market dynamics, resulting in decreased steel output which will support prices in turn. However, he added that this will also depend on how strictly these controls are implemented. The committee chairman stated that the anticipated demand in China failed to materialize after the New Year holidays and so it may be possible to see competitively-priced Chinese steel sold in the export markets. However, the extent to which this will happen depends on the level of demand in China and in the global market. He said that, if Chinese steel demand continues to be weaker than expected, Chinese suppliers may turn to the export markets, while China may face some obstacles due to trade measures.

Regarding the possible outcomes of the EU’s carbon border adjustment mechanism, Alff said that the approval of this mechanism is a significant move and it could face resistance from exporting countries such as China and India as they may consider these measures as unfair practice. He added that these countries may also respond with tariffs on European goods, which could lead to trade frictions. The committee chairman said that the eventual carbon border tax is likely to increase the cost of imported goods that have a heavy carbon footprint, which will result in difficulties for some countries as regards competing in the EU.

Producers at IREPAS: Falling energy costs and scrap prices may create opportunities   

Murat Cebecioğlu, chairman of IREPAS and also chairman of the producers committee, pointed out that the steel industry has been experiencing challenging times amid inflation and rising interest rates, which pose a big problem for investors in making decisions about their investments. He also said that supply and demand are not balanced and that exports and imports are declining everywhere, while adding that capacity utilization rates are way below usual levels. All these factors put pressure on the market, he noted. However, he also pointed to some positive factors, saying that energy costs and scrap prices are coming down.

Commenting on Turkey, the committee chairman said that the country has lost its major traditional export markets and its leading position, adding that the countries to which Turkey used to export, like Egypt, the GCC and Indonesia, have become exporters themselves. Another obstacle facing Turkish exports are trade cases. It is difficult to sell to the US, Canada and the EU and it is impossible to sell to Singapore and Hong Kong. He stated that, with falling energy costs and scrap prices, Turkey may have the chance to do business again. Regarding the steel demand expected in Turkey’s southern region following the devastating earthquakes in February, Mr. Cebecioğlu said that the unfortunate disaster will create demand, not only for the steel industry, but also for downstream segments as well. However, he pointed out that the demand will be spread over years, adding that it is not going to come all at once like people have been saying.

Turning to China, Cebecioğlu said that the Chinese market has not picked up after the New Year holidays, while he indicated that Chinese traders are very aggressive and very much active in the export markets. The IREPAS chairman underlined that China affects all market players because of its big capacity and that the Chinese are exporting to every corner of the world, so “if they stick to reducing production, this might help”.

The rate of export duty for billet in Iran has declined to 2 percent from 11 percent valid previously, as the current export prices for ex-Iran steel billet are higher by nine percentage points than levels fixed in December 2021,  which have been taken as the base price. Meanwhile, the export duties for reinforcing bar is temporarily absent. It is noteworthy that the rates of export duty are not fixed, however are in direct connection with the gap between the current prices and prices fixed in December 2021.

There is still a shortage of steel everywhere in the global long steel products market. Demand remains high in the sheltered markets. On the other hand, there is pressure from the Chinese government to reduce steel prices. It is hard to imagine that this will lead to anything but more supply shortages.

If we look back at the previous price booms in the global market, circumstances were different. There were almost no volumes for traders to trade in 1987 as everything had been sold. In 2008, prices hit the highest levels ever, but the correlations between the different products made production-cost sense. The volumes were there and available, while buyers just paid the price. Today, volumes are in short supply and consumers pay the requested prices. While obviously we are in new territory, it may be noted that the 2008 boom ended with strongly falling prices. Last month, steel production was up by 23 percent. This trend will continue and, as a result, there may be some price correction in the last quarter of the current year.

Buyers in EU have their hands tied, have no option but to accept new higher prices

Reinforcing bar prices in the EU market have reached a 13-year high and the demand there is still strong. Prices of deformed bars are not bound to scrap prices anymore. Some mills have long lead times and those who have material in stock are focusing more on prompt deliveries of smaller volumes, which increases the pressure on the buying side. Due to the lack of import options, buyers have no option but to swallow the new prices in order to fulfil their commitments to their customers in the construction industry. The impact of the EU safeguard measures on steel imports can be seen very clearly taking into consideration that 30 percent of the deformed bars consumed in Germany and the Benelux countries had been imported before the safeguard measures were introduced, whereas the share of imported steel is now down to only about five percent.

Strong demand and scarce supply still prevails in US market

Demand in the US is strong in spite of the high prices in the market. At present, the problem is on the supply side. Most mills are sold for one to two months forward and have less availability of any prompt shipments. Naturally, prices are as high as ever and look like continuing in this way throughout the third quarter. Some mills are adding additional capacities and labour shifts, and so the supply side is expected to be in check in the fourth quarter. However, prices may continue at such levels throughout 2021. Imports are difficult as most buyers do not wish to commit at these historically high prices for three to six months forward. Shipping prices are also as high as before, with much more uncertainty regarding arrival or delivery dates. With all this, domestic mills have a considerable advantage over import sales.

China’s almost complete absence from exports is a big plus for the global market

During the last two weeks of May, many thought that China would have lower prices. However, the prices of Chinese steel are going up again along with iron ore prices. After China removed steel export rebates in the last quarter, its’ reduced capacity for export has become a big plus globally. The world market will be in better equilibrium as China is almost completely out of the export market now. In this situation, any downward trend such as expected by some in the fourth quarter will certainly be much softer. The mills that have no alternative to the Chinese market will have to reduce their prices. There have been some cheap sales from Iran and India. The other countries will weather this short storm. Otherwise, there is not much competition in the market but rather more struggling for availability depending on the product.

Scrap demand continues to increase, expected to remain strong

In the meantime, demand for ferrous scrap continues to increase as steel production strengthens. Supply chains remain extremely tight in many geographies as inventories are low and finished product demand remains high. Well-booked steel mills at high prices will also mean strong demand for raw materials through the next quarter. Another major positive for the market is that global raw material prices have seemed to be levelling off at the recent high prices, which brings some stability for future sales. The attempt by China to push raw material prices down has not succeeded.

Freight rates elevated, another increase may be imminent

Freight rates are elevated as a result of the general demand conditions in the global economy. Container ports are becoming more congested and so another increase in freight rates is imminent.

Hopes increase for more normal conditions in post-Covid period

Steel demand in general remains elevated and we are quickly entering a post-Covid period of open societies, travel, and a return to more normal consumption patterns. Limitations on daily life will hopefully be over by the end of the summer, which will be the main factor supporting demand.

Very positive outlook for US and EU amid vaccinations and public spending

Overall demand is strong due to public spending. Vaccinations have been carried out very rapidly before the summer in the US and the EU and so these regions are returning to their pre-Covid days slowly. New infrastructure and construction projects are being approved in Europe and the US. Regional and domestic demand in Europe and the US are stronger than normal. The Russian market also remains very strong.

Market outlook is satisfactory if not outstanding

The current status of the market can be described as generally stable with some short-term fluctuations possible. The outlook is certainly satisfactory if it cannot be described as outstanding. Going forward, competition will probably only be seen in Asia with some see-saw fluctuations, but it seems the overall market will remain “perfect to proceed”.

Cheap money policy and infrastructure spending in US to give market a boost

Although the four percent inflation increase in the US has created some concerns, the current cheap money policy is expected to continue. It does not seem that infrastructure spending will be delayed this time around. Interest costs for the government and private sectors are at a record low and infrastructure spending is more necessary after another 13 years of neglect. This should support construction-related consumption and pricing. With the arrival of extra demand after we return outdoors, the market should still enjoy good business even next year.

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“The President is issuing an executive order authorizing the imposition of additional sanctions against any individual owning, operating, trading with, or assisting sectors of the Iranian economy including construction, manufacturing, textiles, and mining,” US Treasury Secretary Steve Mnuchin told reporters at the White House. Mnuchin added that the sanction will be in effect “until Iran stops its terrorist activities and commit to never having a nuclear weapon.”

U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) took action against eight senior Iranian regime officials and  designated 17 Iranian metals producers and mining companies; a network of three China- and Seychelles-based entities; and a vessel involved in the purchase, sale, and transfer of Iranian metals products, as well as in the provision of critical metals production components to Iranian metal producers.

Today’s action targets the 13 largest steel and iron manufacturers in Iran. OFAC is designating Mobarakeh Steel Company, Saba Steel, Hormozgan Steel Company, Esfahan Steel Company, Oxin Steel Company, Khorasan Steel Company, South Kaveh Steel Company, Iran Alloy Steel Company, Golgohar Mining and Industrial Company, Chadormalu Mining and Industrial Company, Arfa Iron and Steel Company, Khouzestan Steel Company, and Iranian Ghadir Iron & Steel Co pursuant to E.O. 13871 for operating in the iron, steel, aluminum, or copper sectors of Iran.

The global long steel products market is surely in a better shape today although we have yet to emerge from a slow-activity period due to the holidays in Europe and around the globe. However, real sentiment in the market is pretty positive, especially after the announcement that a trade deal between the US and China will be signed. That said, we have to keep in mind the possibility that any trade deal may prove to be elusive.

Post-holiday developments still awaited in North American markets

The North American markets have been in holiday mode since mid-December and so it is hard to predict the market, but prices were stable at best with higher domestic production and reduced demand at the year-end. Price increases are not expected and, accordingly, the recently increased scrap prices seem to be firming internationally and increasing in the North American domestic markets.

General expectation is for a correction in scrap prices

Indeed, the general expectation for scrap prices is that they will show some correction since reinforcing bar prices became stuck at the $450/mt level and there is no sign in the market that prices will get any better. Mills’ order books in Turkey are less than four weeks, which explains the reason why long product sales prices are not able to cope with the latest increase in scrap prices.

Turkey forced to shift scrap focus to EU and US, demand in Q1 likely to be solid

Supply of scrap from the Black Sea region has dried up as a result of Russia’s export quotas on the raw material. For Turkey, this has meant that supply has to come from Europe and the US to a larger extent than previously. Consequently, the shortage of ferrous scrap in some areas has pushed scrap prices back up in the import market in Turkey. The first quarter of 2020 will likely see solid demand for the raw material.

Output cuts in Europe and US help to stabilize prices

Production seems to have bottomed out in the second half of 2019, with producers in markets in the Western countries, particularly in Europe and even in the US, idling blast furnaces and already taking necessary measures to establish a balance between supply and demand, which has helped to stabilize prices. Thus, a downturn in the short run is not expected unless something unexpected happens on the demand side. However, under such circumstances, one should not expect healthy margins. Of course, the recent increase in iron ore prices driven by Chinese demand must also be noted.

Developments in China remain positive for global steel industry

China continues to stimulate its economy, which provides a boost to the steel industry. Steel exports from China continue to decline and the country has the ambition to use its domestic scrap supply for its own production. The positive news from China will continue to support steel prices, while expectations of a strong Chinese currency will definitely have a positive impact on commodity prices.

Positive developments for markets also seen in Europe

PMI figures in Europe have rebounded with manufacturing looking to recoup some of the losses incurred during the fall of 2019. Another positive development for the market is that the UK has finally ended the confusion about who is in charge of the country and how it will proceed in the coming period.

New IMO regulation may contribute to further regionalization of trade

The IMO 2020 regulation on sulphur emissions in global shipping will mean that longer-distance transportation takes a hit compared with shorter distances and this may lead to a further regionalization of trade.

Situation in Iran needs to be watched

Iran is obviously a major exporter of metal products and steel at competitive prices and, given recent developments, we may be set for some surprises in the market. The oil price is already up as a consequence of the developments in question.

General market outlook is satisfactory despite varying stability in regions

Previous fears of a possible recession seem to have been overblown. Competition in the global long products market is still high and may become even tougher. Due to regionalization of trade and protectionism, the current status of the market in certain regions can be described as stable but unstable in others. However, in general the outlook is satisfactory.

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The outlook for the global long steel products market differs for the scrap industry, the steel producing industry and for steel consumers. The market can be described as generally unstable as there is still a lot of uncertainty and even a tweet may turn a lot of things upside down. We are going through a tough period particularly for BOF-based producers, especially due to increasing raw material costs. There have already been closures and threats of potential closures of several BOFs in Brazil, the
US, Scotland, China, and perhaps even elsewhere. A similar tough period was observed back in 2016, but it was not long-lasting. It seems as if the only way out is to slow down and stop inefficient facilities.

Fundamentals unlikely to support higher scrap prices, supply and demand balanced for billet

Ferrous scrap prices are also picking up, but are not expected to stay where they are now since the fundamentals do not support higher levels. Pig iron prices have seen a downward adjustment to match low residual scrap, which has not made any real gains. Overall, in the market there is an excess supply of slabs, while for billets supply and demand are balanced.

Supply increases in US amid unchanged demand

Demand in the US market for long steel products has not changed, but supply, especially from domestic mills, seems to be
increasing, thus putting pressure on prices. Domestic mills face very little pressure from imports, but, ironically, they are racing against each other to offer deals to even small buyers. On the other hand, US mills are trying to increase their HRC prices, which were unusually low. Of course, the main factor must be the closure of US Steel’s blast furnace-based mills, which have had a hard time competing while using very expensive iron ore.

Canada soon to be number one exporter to US, Mexico more cautious

Canadian mills are now offering to the US with zero duty and will soon gain their number one position as the largest exporter to the US. Mexico has made inroads in the US market, but is cautious as it seeks to avoid further antidumping action on its main products.

Very low demand in South America due to lack of infrastructure investment

The situation in the South American market is pretty much the same as last month. There was a small growth in reinforcing bar consumption in the first five months of this year, but general demand is still very low due to the lack of infrastructure investment. The rebar price level is low when one considers that the iron ore price has hit $117/mt CFR. Integrated mills have no margin to export. The only business opportunities are within Latin America, where the freight cost is less expensive.

Turkish mills’ export opportunities are limited

The EU quotas are almost used up for long steel product exports from Turkey, meaning there will not be any more Turkish sales to the EU market for a year. As a result, the supply-and-demand balance will not be in better shape than it is today for the Turkish mills.

EU market unusually quiet, domestic mills protect their margins, EUROFER not happy

The EU market is very quiet, which is very unusual for this time of the year. EU mills have been trying to move prices upwards but in vain. However, they have not been forced to reduce prices in line with developments in the scrap market and, as a result, have very good profit margins. However, EUROFER is complaining that the EU steel industry is suffering and is thus asking for further measures, which will probably make things even worse for the market. Under such circumstances, it will be very difficult to commit to any international transactions. Subsequently, manufacturing in Europe will even be harder due ot the lack of visibility, which eventually will cause considerable damage to downstream industry. Such actions by the EU have already started eroding common values, i.e., open markets, free trade, etc. EU member states may soon start accusing each other due to the inevitable consequences.

HRC prices in US prove that protectionism is not the solution

It has already been proved that protectionism is not the solution, as prices of HRC in the US are lower than in many other markets nowadays. Free and fair market rules have to be followed. There are already other ways and means to fight unfair trade practices.

No resolution in sight in US disputes with China and Iran

We still have no resolution to the US-China trade war. China is not giving in and the US has no reason to do so. Iran as an important steel producer and there is also no resolution in sight in its case. While there has been some positive sentiment after the G20 summit in Osaka, there is not much confidence because of past behaviours and sudden changes in the political arena.

Iron ore prices soar 18 percent in June, causing cuts in BOF outputs, shift to EAFs

Iron ore pricing soared by 18 percent in June on the back of strong demand and supply disruptions. Some idling of blast furnace production will mean production shifting toward scrap-based electric arc furnaces, which are extending their order books. The production cuts announced by many BOFs in the market will help bring balance to supply and demand.

Exports remain under control in China which shows increased demand for billet imports

Internal consumption in China has so far continued to keep exports under control. Any real or prolonged downturn in China will certainly change the direction of the iron ore market trend. Demand for billet imports is increasing in the Chinese market due to the high domestic production costs. The risk of China exporting steel products is absent, which helps support a balance between supply and demand. On the contrary, China is becoming a destination for semi-finished products. Going forward, we can expect continued investment in the electric arc furnace route in China.

Intense competition within regions, few markets left for exporters

Competition in regional markets is intense, but there is much less competition from deep sea sources due to protectionism. The lack of consumption pushes competition higher. There are very few markets left for exporters.

Demand in Western markets foreseen to remain slow

Demand in Western markets is expected to stay slow for the short term, but we might expect the markets to firm up during the last quarter of this year due to production costs and the anticipated slowdown in production.

Summer demand for scrap expected to be decent, with cheap prices compared to iron ore

As for raw materials, the summer will likely see some decent demand for scrap, which will mean stable pricing. The iron ore to scrap ratio is at a low point. In this respect, scrap looks cheap. The summer period in the European market will draw down scrap availability.

Foggy outlook for next quarter in an unstable market

The activity in the global long steel products market is expected to be slower than usual during the summer. In general, the market is unstable and the outlook for the next quarter is foggy.

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The uncertainty in the global long steel products market has increased dramatically. Nowadays, the most stable region is China, where steelmakers have been increasing their weekly production volumes, whereas the rest of the world is just trying to hang on.

Ferrous scrap and iron ore price trends decouple completely

Ferrous scrap and iron ore price trends have completely decoupled. Iron ore prices have hit five-year highs at over $100/mt delivered to China. Currently, there is almost no margin left for BOF mills. On the other hand, ferrous scrap prices are decreasing. Meanwhile, Turkey, the largest importer of ferrous scrap in the market, is suffering deeply from the collapse of domestic consumption.

Worrying signs amid increased global output and unsatisfactory demand in EU and US

The main issues affecting the market are, first of all, the production increase that the world steel industry has seen since 2016 and, secondly, the unexpected drop in demand in the EU and the activity in the US under the Trump administration which has not been as good as predicted.

China performing well, other regions experiencing difficulties

Steel production globally continues to grow at a strong rate. China is set to break through one billion metric tons in 2019 should it continue at the current pace, while its exports are still muted based on strong domestic consumption. China is also adding EAF capacity at a fast pace to absorb domestic scrap generation and make use of the relatively cheap raw material. In Europe and Turkey, capacity utilization is being cut due to slower orders – in Europe mainly due to headwinds affecting the light and heavy automotive sector and in Turkey due to its reeling economy which is contracting. In the US, capacity has been added which weighs on steel pricing.

Global steel industry still in a better position compared to 2014 and 2015

Overall, the last three years have been very healthy for the steel industry. This year is still fairly good compared to 2014 and 2015. However, mills will struggle in the short run mainly due to the cost issue. The poor demand in the EU and especially in Turkey will pour salt into wounds. Thus, it is time for some mills in some areas to adjust and reposition themselves based on the situation outlined above. Many scrap melters around the world have already decided that less could be better. Meanwhile, ArcelorMittal Europe is the only blast furnace-based producer that has announced cutbacks in production in order to increase prices, and this seems to have worked for now.

US mills show signs of panic, rush to cut their prices

Prices keep going down in the US market. The demand is there and is stable, but the fear of losing the market to imports has convinced domestic mills to race to drop their prices, sometimes without even being asked. Domestic mills were enjoying 25 percent-plus margins, but then President Trump cut the duty on imports from Turkey to 25 percent and the market panicked. Almost at the same time, he announced that the Section 232 tariffs on imports from Mexico and Canada would be reduced to zero, which should affect the market, but the on-again off-again Mexican duty (tied to other matters) made buyers cautious again. Both Canada and Mexico are under notice to not sell more than what they sold before. Regardless, US domestic mills are very uneasy as they have plans to add even more capacity. In addition, the softening of ferrous scrap prices has created expectations for further decreases and has influenced buyers to delay their new purchases.

EU protectionist measures fail to provide expected benefit for domestic mills

In Europe, the current quota system is helping to keep prices stable in many markets, but the safeguard measures have not brought the expected benefit for EU mills. Too many cargoes arrived at the start of the season in February and April and clients have filled their stockyards. Subsequently, mills had to reduce their prices to collect new orders. Now, however, the next wave of imports is expected to arrive in July, which will probably cover a good portion of the demand for the summer period.

European mills under pressure

The collapse of British Steel, the announcement of price increases by ArcelorMittal for long products, and the imminent maintenance stops of European mills could help to increase the prices for long products in the EU market. However, the price trend of ferrous scrap and the general sentiment in the market do not help. Besides, it is quite difficult for European mills to export steel out of Europe due to low prices elsewhere. Therefore, the current alternatives are either to push more steel into the domestic and regional markets and thereby of course end up putting downward pressure on prices, or, on the other hand, to stop production.

Asia outperforms rest of the world, low oil prices a positive development for global market

The stability of China is very important for the global steel industry, while some dramatic change could be seen after the G20 meeting. Steel demand globally continues to grow and keeps encouraging market players. Asia is outperforming the rest of the world. Oil prices have dropped considerably since April, which constitutes another positive development.

Scrap prices currently very attractive but falling prices to eventually impact scrap generation

The scrap to iron ore price ratio makes scrap look very attractive at current levels. The problem for scrap at the moment is the construction sector in scrap-importing Turkey and also the fact that spring in the US has generated a lot of scrap flow. The falling scrap prices will eventually slow scrap generation and availability.

Protectionism limits pressure from competition

More steel producers are willing to take a second look at lower prices. However, the pressure from competition does not seem to be strong and has been diminishing due to political protections in general. Competition in the market is still very much determined by geopolitical factors.

Changeable protectionist picture is the main contributor to current instability

Unfortunately, trade barriers and the tariff picture for the balance of this year is quite uncertain, far outweighing any uncertainty in demand, supply and competition. Margins for steel producers are approaching ‘painful’ levels.

Political developments will need to be watched

The first and foremost problem is capacity utilization which has been decreasing in 2019 in many regions. On top of that, there will be more elections from Istanbul to Jerusalem, the G20 meeting in Tokyo, the US-China trade meltdown, and crude oil crises linked to Venezuela and Iran.

Outlook for market characterized by greater unpredictability

Under the current circumstances, the market can be described as fluctuating and unstable. The outlook is very much uncertain, less predictable and weaker.

Some stabilization may be seen over the summer months

Scrap accumulation is expected to slow down over the summer months in part due to lower prices and in part due to industrial vacation periods. Demand and supply will then become better balanced and stabilize pricing.

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Iran stands out as one of the non-WTO countries whose rebar exports to Turkey have increased lately. Towards the end of last year, Iran started to be seen as a threat to the Turkish rebar market. Other non-WTO countries are Iraq, Syria, Azerbaijan, Bosnia-Herzegovina, Serbia, Belarus, Algeria, Libya, Sudan, Ethiopia and Somalia.

The import duty on rebar in Turkey was first decreased to ten percent from 30 percent in July 2017, and then completely removed as of January 1, 2018, before again being raised to ten percent at the beginning of the current year.