On April 2, the Trump administration plans to begin in-kind reciprocal tariffs against all countries taxing the import of US goods. The rates, products and countries affected by the tariffs beyond April 2 remains to be determined, media reports say.

All three countries are currently working on ratifying the new USMCA trade deal. Canada and Mexico had both insisted previously that the tariffs be lifted before the trade deal was implemented.

In addition, the US and Canada will drop all pending litigation in the World Trade Organization related to the tariffs, set up measures to prevent “unfairly subsidized and/or dumped” steel and aluminum and prevent the transshipment of those products, and make an “agreed-upon” process for monitoring the trade of steel and aluminum.

Mexico announced in a separate statement that it will also remove retaliatory tariffs against US goods and cease pending litigation, along with implementing measures to stop unfair trade practices in the steel and aluminum markets.

The Trump administration said it plans to send paperwork to Congress to set up a vote on the USMCA before lawmakers adjourn in August.

The global long steel products market is currently in a positive mood amid good demand worldwide. Had there not been protectionist actions like additional tariffs, quotas or safeguard measures, the global business scenario would be much better. Protectionism is like a virus, expanding and hurting the international trade environment as we knew it.

Canada and Mexico follow the US and also jump on the protectionist bandwagon

In the Americas, after the US, Canada has also got on the bandwagon though not with the same intensity, and now Mexico has announced that it will be reinstating the 15 percent duty on steel imports. Demand in all three countries is strong, but the benefit goes to domestic mills only.

Canada and Mexico expected to eventually sign USMCA agreement

It seems that Canada will be the first to sign the USMCA (the new NAFTA) agreement, if they agree to a quota to replace the tariffs. Politics in both the US and Canada could delay this: however, it appears that the earliest resolution could happen by late summer. Mexico’s signing of the agreement may be delayed months after the signing by Canada.

US and China appear to be moving closer to a trade deal

On the other hand, the negotiations between China and the US seem to be improving as we read reports saying that they are getting closer to a trade deal. Obviously, the markets in China and Asia are all awaiting news on the China vs US feud.

EU quotas boost domestic markets, strengthening dollar discourages imports

The recently implemented quotas in the EU are having a very positive effect on the EU producers’ capacity utilisation and increasing their margins significantly. In addition, with the US dollar gaining strength against the Euro, imports are even getting less and less attractive which further improves EU producers’ advantage in the market.

Exporters continue to suffer amid uncertainties in the global market

Both US and EU mills still enjoy good business in their respective domestic markets with margins like never before thanks to the tariffs and safeguard measures in place. However exporters continue to suffer due to the uncertainties in the global market. The market players who benefit from fair and free trade are suffering because of protectionism and the current political mood.

Demand for ferrous scrap has recovered since the start of the year

The European, US, Chinese markets are all performing well with strong domestic demand for steel which drives scrap demand. Accordingly, demand for ferrous scrap has returned since the beginning of the year. After seeing bottom levels in December, the long steel products market has started moving in an upward direction since January and is also supported by raw material prices.

Turkish long product steel mills continue to suffer

The global steel market is indeed characterized by a positive mood at the moment, but the Turkish long product mills are still struggling because of protectionism in the global market and the lack of domestic consumption.

Turkish suppliers face shrinking export opportunities

Not many markets are left in which Turkish exporters can conclude business, as both the US and Canadian markets are closed because of duties, and the new quota regime makes it difficult to do business in Europe. The GCC and Far Eastern markets are also out of reach to Turkish suppliers for the moment because of the price gap. The remaining target markets are Central and South America, North and South Africa, Israel and Yemen, but the volume that can be generated from all these countries is quite limited.

Steel mills’ margins still positive though not as good as last year

The good news is that most steel mills globally have positive margins despite all the ups and downs, even though the margins are not as good as last year. Also, despite the increase in iron ore prices, scrap prices have not moved up at the same rate.

Good domestic demand in China continues to keep Chinese exports in check

Chinese exports are still being held relatively in check thanks to good demand in the Chinese domestic market. No downward price trend is expected in the short run in China due to the additional state support for the market. Also, the outlook for a deal with the US will help to keep the Chinese economy on an increasing GDP trend. Expectations for China and the US to reach an agreement on trade tariffs toward the end of March have been driving the financial markets for some time.

Strong competition exists in the international markets not blocked by protectionism

Competition is limited and moderate in most markets due to protectionism, tariffs and quotas. The markets are having to adjust accordingly as the playground is smaller now. There is strong competition in those limited number of markets which are not closed to international market players by protectionism.

Outlook for global longs market still satisfactory despite ongoing instability

The current status of the global long steel products market is perceived as being mostly unstable due to the aforementioned reasons. Having said that and despite all the existing issues, the outlook is still satisfactory, even though it remains challenging.

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There is huge uncertainty in the global long steel products market as there are a lot of unknowns against the backdrop of protectionist measures and price corrections.

US-China ceasefire may reduce volatility in international market

The trade dispute between the US and China has been kicked down the road for another 90 days. The ceasefire in the trade war between China and the US can contribute to a steadying of nerves and to reducing volatility in the international markets. At least, the latest trade dispute deferral may be a positive break for the next 90 days.

US tariffs likely to remain in place for the time being

Canada and Mexico signed NAFTA 2.0 (USMCA) with the US and still have Section 232 duties at 25 percent. The 50 percent duty on Turkish exports to the US still stands despite the recent developments in the political arena. The US Congress is not going to vote on the new USMCA agreement until after the Democrats take control of the House of Representatives. This means tariffs in North America will stay at 25 percent and, most likely, that the duty on Turkish exports to the US will stay at 50 percent.

Year-end destocking to increase pressure on prices in US

Meanwhile, the year-end is getting closer and almost all stockists in the US are trying to lower their inventories. The pressure on prices increases during this process. US mills are not as busy and have shorter waiting periods for deliveries. The same problems are expected to linger throughout the month.

Uncertainty surrounding EU safeguard measures adds to market unpredictability 

The European Union is expected to announce a safeguard measure in the way of country-specific quotas, maybe per quarter. However, the uncertainty surrounding this situation is making the market unpredictable. New rumors are popping up every day as there is no proper and practical treatment of the issue. It seems to be a very politically-driven process.

Inventory adjustment also impacts European market 

A general event this time of the year is inventory adjustment ahead of the New Year period. This has been vivid in 2018 in Europe where the auto industry has slowed considerably in a short period of time, adding uncertainty over demand in 2019.

Turkish mills face difficulties on several fronts

According to a US presidential announcement, the reason for imposing a doubling of tariffs on Turkish exports to the US was the sudden devaluation of the Turkish lira, a reason which is now no longer valid. At the same time, Turkish exports to the US are down by about 55 percent, a far sharper drop than seen for the exports of any other country.

However, the US market remains blocked for Turkish exports. On the other hand, the prevailing prices in the Far Eastern market are now below the cost of production for Turkish producers. On top of these issues, domestic consumption in Turkey has almost stopped and the hit coming from vanishing domestic consumption is very hard on mills. As a result, Turkish mills are not left with much option but to suspend production in the coming months.

Turkish economy expected to contract in 2019, trade measures may be imposed

The markets have deteriorated considerably following Turkey’s economic slowdown. The Turkish economy is now expected to contract for the coming year. The steel and scrap markets will have to accept the impact of this on larger regions for an extended period. Iranian exports to Turkey are also adding to the pressure on Turkish producers, and this development could cause trade measures to be implemented in Turkey also.

Remarkable reversals in steel prices seen since August 

Remarkable reversals in the prices of steel products have been observed since August.  Ferrous scrap prices in Asia have fallen by US$50/mt in less than two months. Available supply cannot be sold profitably. The strong price corrections observed in the market suggest that global business is worsening; however, ferrous scrap and iron ore prices have also indicated corrections, and so the final impact on spread levels should be seen in the coming weeks.

Strength of Chinese steel demand still remains key issue

The key issue for the short term still looks like demand in China. If demand in the Chinese domestic market turns out to be good enough to prevent Chinese mills from being aggressive in the export markets, then spreads will reach an equilibrium at reasonable levels. Otherwise, we will see Chinese exports trying to reach various markets protected by many trade barriers and the consequence will be more pressure in the global market. That said, the situation in China still gives us enough reason to be optimistic for 2019.

Real economy developing better than some previous forecasts

The real economy is developing better than some pessimistic predictions had indicated. No dramatic hike in interest rates seems likely in developed countries while oil prices are lower now, and these factors are also positive indicators for the steel market.

Prices in EU and US considered to be stable

The EU market is strong and solid, while prices in the region are considered to be stable. It looks like interest rates will not increase further, which is good news for the euro. Prices in the US are also considered to be stable.

Build-up of scrap-melting EAF capacity in China is a positive development

The build-up of scrap-melting EAF capacity in China is another positive development, but yet again we are a tweet away from knowing something new or from facing a new situation.

Competition in global market generally becoming stronger

Amid all the aforementioned circumstances, competition in the global market is increasing and getting stronger in general. It has slackened only in certain regions due to the plentiful number of trade barriers, and also in some other regions because few can compete without incurring losses. Chinese mills still do have margins and so competition with China could increase quickly.

Less-than-satisfactory outlook exists for market amid uncertainty and high volatility

The market can be defined as unstable at the current juncture with a less-than-satisfactory outlook due to uncertainty and extreme volatility.

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The  global long steel products market still seems to be in equilibrium in terms of supply and demand. However, the steel trade is becoming more and more regional and so different supply and demand situations may be observed in various regions. Accordingly, although the overall market is generally stable, there are fluctuations seen in certain regions.

Sharp increase in Turkey’s export activity, drop in domestic sales

For instance, in Turkey there has been a sharp increase in export activity and a drop in domestic sales of long steel products. Following the doubling of tariffs by the US on steel imports from Turkey, it seems that Turkish exporters will continue to face difficulties in compensating for the absence of the US market as well as for the loss of sales in their domestic market, with exports to the Southeast Asian and Far Eastern markets. Accordingly, Turkish mills are expected to supply more billets, which will also lead to a drop in billet imports coming into Turkey.

Spread between scrap and rebar at its lowest since summer of 2017

On the other hand, another consequence of the above situation is a spread between scrap and rebar figure of $170/mt which is the lowest since the summer of 2017.

Prices soften in US as buyers become less eager due to approach of winter

In the US, buyers are less enthusiastic about purchasing more inventory due to the coming winter months. Prices in the US are softening as domestic mills compete to capture the majority of the demand that is left. The mills have very healthy margins, which helps them obtain any business they choose. Their lead times are also getting shorter.

Mills in EU under pressure to lower their prices

In the EU, despite full order books, cut-and-benders are not able or willing to achieve much better numbers for projects and this will put pressure on European domestic mills in the near future as they need to have lower prices compared to current levels. However, mills are reluctant to reduce prices knowing that the majority of clients have to buy most of their requirements from domestic suppliers, especially towards the end of the year when tonnages may reach toxic levels.

EU mills hold big advantage over imports

The low water surcharges across the EU and the doubling to tripling of barge rates makes imports extremely dangerous and costly. As a result, the domestic steel producers in the EU have a big advantage over imports.

Global long steel production utilization rates at strong levels

Having said all that, with continued global growth and added demand for steel products, the global long steel industry is performing well and at strong utilization rates.

Agreement on USMCA a positive signal for global trade

The ability of the US, Mexico and Canada to agree on the USMCA, the new NAFTA, is a positive sign within the global trade perspective.

Absence of China continues to ensure optimism

Even though its planned output cuts are much less than anticipated, China is expected to again reduce production over the winter heating period for air quality control reasons, which should cap export availability over the coming winter months. With prices in China still very high, the absence of Chinese long products, or in other words China still only offering limited future offers, helps keep global prices under control and continues to ensure opportunity and optimism.

Demand for scrap remains slack for the time being

Demand for scrap is soft for the time being, especially in Turkey, and this also helps keep product prices in check.

Many suppliers forced to search for new markets as historical trade flows disrupted

Competition is tough in the market but is not on a fair basis due to the attitude of goverments relating to protectionist policies. Protectionism and trade cases all over the world are disrupting historical trade flows and many suppliers are forced to search for new paths. As a result, conditions for fair competition are worsening.

Very difficult to make forecasts due to tariffs and tweets 

Global trade is constantly being tested by political measures, tariffs and quotas, which are making predictions on flows difficult. It is indeed very difficult to make any forecast today since just one early morning tweet can change everything and as there is no guarantee that anyone is exempt from the next tweet. Visibility is still low due to current remedy investigations, e.g., the safeguard investigation in the EU.

Overall picture in global long steel market still positive

However, overall the picture is still positive, with growth rates, demand and oil prices among some of the positive indicators. The remainder of 2018 is expected to run well in many markets simultaneously, with solid demand for ferrous scrap as a result. As a result. the outlook for the last quarter of the year is satisfactory.

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