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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While the supply and demand balance in the global long steel products market still looks good, the supply side is gearing up. Supply pressure is not expected to create big problems in the short run but may be an issue in the medium term if demand is not able to cope with it. Even Chinese companies have learned that dollars are more important than tonnages. Accordingly, everybody needs to be careful when thinking about adding more tonnes.

Limited supply of Chinese steel is the biggest positive in the global market

GDP is improving worldwide, with the main economies performing quite well. Demand is stable in Europe, and multiple other markets are performing quite well also. That said, the limited supply of Chinese steel is the biggest positive in the global market. China is still holding back and it looks like it will not be back in the export market after the Chinese New Year holiday, which is certainly a very optimistic sign for the market.

Though prices weaken a little in Europe, EU and US drive global consumer optimism

Pricesin the European market have come down a bit due to weakening prices in Turkey and the strengthening of the euro. Nevertheless, the positive mood especially in the EU and US is giving confidence to long steel consumers worldwide.

Strong rebar demand in major consumption areas

As regards the short term, the situation has worsened due to the declines in Chinese steel prices and in scrap prices. However, the prospects in the medium term are brilliant because demand for rebar is strong in the major consumption areas. Hopefully, after the Chinese New Year holiday, the market will move again and scrap prices will rebound, pulling rebar prices up once more.

Wait for Section 232 outcome causes some uncertainty in US market

Demand has been steady in the US with the potential to improve in future months; however, supply in the US is limited. The unknown fate of Section 232 is holding back imports, giving domestic mills the opportunity to increase their prices. This situation may change quickly depending on the results of Section 232.

Reasonable demand and positive sentiment in major Latin American countries

Demand in the major Latin American countries is reasonable, accompanied by positive sentiment in relation to the forecast for 2018. Price adjustments may be seen in the very short term but still not affecting the interesting spread levels. Market prices are expected to trend upwards after the Chinese New Year holiday.

Scrap demand to remain at decent levels in EU and US

The long-awaited correction in ferrous scrap was seen in January despite demand being fairly stable. Decent demand in the steel sector will continue to keep scrap demand at decent levels for the coming month in the European and US markets, since the influx of imports is at subdued levels.

Prices for electrodes to remain challenging

Electric arc furnaces (EAFs) will be faced with challenging prices for electrodes not only in spot trades but also for longer-term contracts as supply restrictions mainly in China reverberate in the global market.The cost difference between blast furnaces and electric arc furnaces will bring scrap prices to reasonable levels.

Depreciation of dollar, oil prices above $65 and unchanged US Fed rates provide support

The weakening of the US dollar, which has depreciated by almost another four percent against the euro compared to one month ago – which means that prices in the EU have appreciated almost by $25/mt just because of exchange rate – continues to ensure that commodity prices are at high levels. Oil prices are above $65 a barrel and the US Federal Reserve has kept interest rates at unchanged levels. These are all positive factors supporting the current atmosphere.

Weaker US dollar and balanced world trade to keep steel and scrap prices elevated

The weaker US dollar coupled with the increased balancing of world trade will likely mean that prices for steel and scrap will maintain somewhat elevated levels as compared with recent years.

Competition is mostly at reasonable levels

Competition in the market is mostly at reasonable levels. However, mills’ margins are sufficient for them to be able to reduce prices to become more competitive if they have to. Currency fluctuations in late January made the environment somewhat challenging and will likely also have trade implications going forward.

Outlook for next quarter is satisfactory

The market can be described as mostly stable and looks set to continue like this, with some exceptions. The outlook for the next quarter is satisfactory.

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Conditions in the global long steel products market are slightly better as we can see a “better” supply and demand balance in China and the US due to output cuts at the end of 2015 and amid the restocking cycle in North America and Europe during the first quarter of 2016.  On the other hand, there has not been much  improvement on the demand side. Buyers are very hesitant and the retreat of raw material prices has not helped. The lack of improvement on the demand side suggests a significant risk for the aforementioned slightly better market scenario.

Global capacity utilization closer to 2009 levels than any year since

In terms of global steel production, capacity utilization figures are closer to 2009 than any year since then. Even in 2009 China roared ahead with good numbers and increasing tons, but unfortunately this is not the case in 2016. If the current average capacity utilization around the world is between 60 and 65 percent, such should be enough to create longer lead times and a slow rise in prices. However, this has not occurred yet.

Margins being squeezed to economically unworkable levels

Long steel product output is indeed decreasing but more output cuts still should and will be made, as plenty of offers are coming for every possible deal and margins are being squeezed to economically unworkable levels. The market might have hit the bottom or in other words entered the final phase, meaning this is the worst period that has been experienced so far.

Chinese steel exports continue to increase

China has seen an almost six percent drop in its steel consumption against which its steel output has only dropped by about two percent. As a result, total steel exports from China are up by another 30 percent. According to Worldsteel figures, world steel consumption is down by around two percent, whereas output is down by almost three percent. Since China represents almost half of the global steel output, this means the rest of the world has reduced output by four percent. The figures suggest that the Chinese mills are eating up the share of non-Chinese mills, with the backing of state resources.

Steel mill losses have become the norm

Nowadays almost every steel mill is announcing losses, including the Chinese mills. The situation with the Chinese mills is probably even worse than the situation of other mills worldwide, but it does not hurt them as much as it hurts the others.

Sharp surge in trade cases in 2015

Given the increasing losses incurred by steel mills, the number of trade cases exploded in 2015. Protectionism has become more prominent in different areas to safeguard domestic and regional producers from Chinese and Russian steel. More trade cases are expected until market forces will pressure them to slow down so that the world can reach a supply and demand equilibrium. Such a slowdown might be seen towards the end of the year if not the middle. Even if the impact of trade cases will not be instant, in the medium term we will see a stronger position for local mills in their respective markets.

Nevertheless, there are more homologation applications in progress than ever seen before. These applications suggest that blocking one single “enemy” will not stop the next one or will even widen the door. Local mills have significant problems in lifting prices in the short term because of such severe competition.

At the same time, China is receiving real “wake-up calls” from the rest of the world. Both the US and the EU are expected to announce trade cases against cold rolled steel coil imports from China.

Market sentiment depressed by poor world economic outlook

The worldwide economic situation does not give much hope either for a stimulation of and increase in demand, which seems to be the only chance for the industry to raise prices in the short term.

Current market prices at lowest levels since 2008 crisis

The current market prices are much lower than the lowest observed after the 2008 crisis. Oil prices at around $30 a barrel, iron ore prices at around $40/mt and scrap prices being where there are today make it quite difficult to cope and do business as margins are squeezed drastically. The fact that the outlook for iron ore is still negative allows no chance for scrap prices to move up.

Competition at peak levels in global long steel market

The level of competition in the global long products market is at its peak. As the market has shrunk, not alone due to global economic and geopolitical problems, but also because of antidumping cases, safeguard measures, Chinese exports and above all locally increased capacities in traditional markets, everyone – from producers to traders – is fighting to protect what they have and trying to get a fair share of the market. The competition is very strong especially due to Chinese and Russian suppliers. There is no economic logic in the competition currently observed. It is at unreasonable levels and is simply a survival issue for most steel mills.

Russian suppliers, Algeria, Iran, impact of oil prices and conflict in Middle East…

Russian suppliers at present hold a lot of advantages: cheaper ore, cheaper power, cheaper coal, cheaper labour, cheaper logistics, and a very undervalued currency.

The demand coming from Algeria is expected to slow down in the near future which will increase competition inside the EU market further due to a lack of alternatives.

Iran will soon be in the market and wants to export more steel, both flat and long.

The low oil price is restricting trade in some steel importing countries like Egypt and Algeria, but, in the meantime, it should help boost economic activities in developing countries. The situation in Egypt and Algeria is certainly not a positive for the market, and the worsening war in the Middle East is a negative. With geopolitical turmoil comes shifting trade conditions.

Under these circumstances, the market can be considered to be very unstable. Even though there has been a certain degree of stability lately, there are substantial downside risks in the global macroeconomic and political scenario that could impact market sentiment and jeopardize business conditions.

Cuts in steel output still on the slow side

Steel output is continually dropping, which shows that the industry is acting to take care of the problem. The speed is on the slow side as of yet though. Production cuts are forcing all players to make more careful calculations on their pricing system. The public is now more aware of the problems in the steel industry globally.

Poor financial performance forcing money out of steel business

The poor financial performance of the whole industry everywhere is causing money and investors to run away from the steel business. This will force new production reductions in 2016 even at a more accelerated pace than seen last year, and will help restore the supply and demand balance.

Billet remains an alternative to scrap  

Steel mills reliant on scrap have found billet to be an attractive alternative. Billet producers can sell billets in most places achieving a greater advantage than if they were to roll the billets themselves. With global growth being on the low side and oil prices sliding, freight rates hit all-time lows during January, which has pressured the pricing of goods on CFR basis even though dock pricing has been fairly consistent. Energy is also much cheaper.

Some positives in US domestic market

US domestic steel pricing has increased and domestic scrap pricing remains fairly steady.  Most stockists are short of inventory in the US market, where the economy is still on a positive trend. However, the expected production increase will take the advance out of pricing soon. If raw material pricing goes down in the US, this may be a further positive for the domestic mills.

Lower scrap prices in January may boost scrap market stabilization going forward

With lower pricing for ferrous scrap in the international market from January, demand for scrap has grown which may help stabilization of the scrap markets going forward.

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IREPAS chairman Kim Marti stated during his opening address that the main challenges the long products industry is facing are overcapacity and declining prices.

He said that in the next few months China may see a decline in steel exports because some private sector Chinese mills are experiencing financial problems. Mr. Marti stressed that steel is a cyclical business and that this could mark the turning point of the cycle. Regarding declining prices, he commented, “We are closer to the bottom.”

According to Mr. Marti, current economic conditions create both winners and losers. “On the losers’ side, we see emerging economies such as Russia and Brazil experiencing a slowdown, while developed economies such as the US and the EU are seeing an acceleration of growth,” Mr. Marti said. He went on to say that the EU economic sentiment index rose to 105.6 in September this year, the highest since August 2011, which indicates that the EU is overcoming its financial problems.

The IREPAS chairman also pointed out that Chinese economy is changing from being investment-led to being a robust, consistent economy which is based on domestic consumption, adding that he believes business has a bright future in China.

On the last day of the conference, producers of long steel products and steel billet, 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: Scrap prices have not bottomed out yet

The chairman of the raw material suppliers committee Jens Björkman from Stena Metal, said that the raw material markets were supply-driven, with a negative spiral seen in the scrap markets. He indicated that demand for scrap has followed a negative trend in the past few months, especially in Asia, pushing supply elsewhere and crowding the market.

Mr. Björkman pointed out that capacity utilization of steel mills has declined and this has affected scrap pricing since supplies have fewer destinations. He went on to say that intra-EU scrap demand was fairly steady, though it has slowed down in the past few months. On the other hand, in the EU scrap pricing was quite strong but declined during the summer period.

The raw material suppliers committee chairman said that prices have not bottomed out yet, adding that the decline in scrap prices in the US and EU is a result of lower scrap demand from Turkish mills. Mr. Björkman also said that lower prices will likely cause a reduction in scrap collection in the short term. Meanwhile, scrap supply from the Black Sea region, which is one of the main sources for some steel mills in Turkey, has dried up considerably.

Commenting on scrap usage predictions, Björkman said that scrap demand is expected to be fairly good but may be distributed over larger areas, and may not be concentrated as it was in previous years.

Traders discuss trade barriers and price trends

F.D. Baysal from Seba International, the chairman of the traders committee, said that some traders believe that there exists room for a small further price reduction, while the general consensus is that prices are at the bottom or pretty close to it.

Regarding the current situation in the US, the traders committee chairman stated that the committee members discussed whether mills are ready to produce new grades according to new ASTM standards. Mr. Baysal said that they also talked about the CARES’ (Certification Authority for Reinforcing Steels) suggestion that trading companies should be CARES-approved as well and whether this was another way of imposing a trade barrier. He pointed out that the traders did not subscribe to the suggestion. Commenting on another trade barrier, antidumping cases, Baysal said that not only the cases themselves but also the annual reviews create risks as well.

In answer to a question about whether the major iron ore producers’ increasing supply volumes constitute market vandalism, Mr. Baysal said he did not think it was market vandalism, but rather a strategy. “My belief is that when the smaller guys are out, the major producers can control the prices better. If the market turns against them, it might hurt them but I think it is a smart strategy. Once the smaller ones are out, it will be really hard for them to come back,” he concluded.

Steel producers: Global rebar demand is generally stable

The chairman of the steel producers committee and also the chairman of IREPAS Kim Marti said that there have been two significant changes in the market: Turkey has become a net importer of billets from being a net exporter and billet exports from China have increased significantly. He added that when sanctions are fully lifted Iran will probably enter the billet market, but it is not clear when.

Mr. Marti stated that the producers committee believes that the CIS and China will remain major billet exporters, though their export volumes will not indicate significant changes. Commenting on rebar demand, he said that global demand is generally stable, with markets showing differences depending on the region.

According to the IREPAS producers committee chairman, long products demand in Brazil has been negatively affected by the slowing down of the economy, also effecting the market in South America negatively, while in North America rebar demand stands at reasonable levels. Mr. Marti stated that the EU is still benefiting from lower oil prices, while demand from the construction industry in the region is recovering at the same time. Meanwhile, southern Europe is recovering, but production volumes are still low.

The committee chairman said that Turkey is the world’s second biggest rebar exporter after China, adding, however, that the export markets are shrinking in the Middle East because of political turmoil. On the other hand, the CIS markets are expected to stabilize in 2016 and exports will continue.

Trade for long steel products has been slower due to summer breaks in the northern hemisphere, although demand in Europe and North America could be described as reasonable for the season.

Oversupply remains biggest problem

Some oil producer countries are showing the effects of oil price reductions in terms of lower demand and currency devaluations that restrict imports. Oversupply is the biggest problem and is pushing prices of some products to levels irrationally unprofitable.

Chinese suppliers still aggressive, Russian and Brazilian suppliers doing their best

There is strong oversupply of iron ore-based steel products in the market. Aggressive competition from Chinese suppliers continues, but Russian and Brazilian suppliers are doing their best to take business. The market for EAF products is in greater equilibrium. However, as the market expects scrap prices to continue their downward trend, there is little reason for demand for EAF-based products to be more than hand-to-mouth.

China versus the rest of the world

Stable raw materials prices are helping to hold floor prices for finished steel products. However, this stability is set at a point where the price spreads between raw materials and steel products are very low. Competition in the market is still very severe and intense for those who have to produce and sell, mostly due to the strong competition with Chinese material in most regions. Back in the year 2000, the rest of the world’s steel output was 20 times China’s output. Today, Chinese output is equal to that of the rest of the world. Therefore, if we add one unit to Chinese side, we need to deduct the equivalent from the rest of the world to keep things equal. As long as China will continue increasing its presence in the international market, producers in the rest of the world will continue to suffer and trade remedies against China – such as the US is imposing – will be more common all around the world. As a result, business will become more regional.

Drop in oil prices should provide support for demand side

The drop in oil prices should lead to an accelaration of global economic growth as has always happened in the past. Most savings go straight to the pockets of consumers and this extra income is spent rapidly. In the meantime, governments of oil producing countries maintain their spending programs using financial reserves or by borrowing. Demand for steel should naturally benefit from this context, which will help the market overall, even though it may not be enough to solve the existing overcapacity problem.

EU stability and US growth are positive factors

The continuing stable situation in the EU area and the current level of demand in the European domestic market as well in as the US domestic market and the higher growth rate in the US are positive factors. US consumption will likely be boosted by lower energy prices and this will help growth but short-term challenges continue to exist.

Some positive demand signs but also hesitancy in ferrous scrap markets

As for ferrous scrap, the markets can be divided in different sectors. The Asian market is dragging the rest with it. The traditional scrap buyers are able to essentially run on Chinese semi-finished steel rather than operate their melt shops. All containerized scrap markets have seen prices come down to reflect the alternatives. US domestic scrap demand remains fairly strong as US steel producers are capitalizing on the downtrend of scrap prices, which reduces their costs and helps them to stay reasonably competitive.The European scrap market has stayed fairly stable, with prices falling on euro basis but not to the same extent as international US dollar-priced markets have. This is a reflection of the ongoing decent demand in this particular market. Scrap supply is decreasing with the price drops and this may help balance the situation somewhat. Strong currency fluctuations and uncertainties regarding conditions in China have been influencing the general sentiment over past months and have made the markets hesitant. The reelection in Turkey and the weaker Turkish currency have raised concerns regarding inflation and instability, causing postponement of demand from Turkish mills.

Many suppliers and fewer buyers in scrap markets

Scrap suppliers have experienced that demand has lessened and so crowded suppliers are trying to sell to fewer buyers. The more normal pricing differentials between markets has been altered in some areas due to anti-dumping duties on steel as well as decreased bunker fuel rates which shift competitiveness.

Discrepancy between scrap prices in Turkey and Far East

Price of container scrap is around $170-180/mt in the Far East, and there is a big question on how the $235 per ton price level can be maintained in the biggest import market which is Turkey. There has been an almost 10 percent drop to 650,ooo metric tons in Turkish rebar exports, while China has reached almost 2.5 million metric tons per month. Therefore, in the long run Chinese billet purchases may not be so helpful to Turkish mills as they are at present, and ferrous scrap prices may need to move in line with current billet prices. It is probably time for scrap to the break $200/mt level for Turkey.

Approach of year-end to have usual dampening effect on long steel demand

The outlook for the rest of the year is not very positive as seasonal effects are also expected to have their usual negative impact on demand for long steel products towards the end of the year. The highly oversupplied market seems unstable and unpredictable with difficult times ahead for many steel mills. We will probably see new antidumping cases inititated in several different markets. It will also be important to see which of the current antidumping cases will be successful and change the market dynamics.

European scrap demand remains fairly good and likely to improve

As for ferrous scrap, European demand remains fairly good and prices have fallen to a level which will likely raise demand for scrap. Lower supply will also help.

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