At the opening of the conference Murat Cebecioglu, chairman of IREPAS, said that IREPAS firmly believes in, has supported and will always continue to support free and fair trade in steel but is very concerned by the recent developments triggered by the unilateral US tariffs, which are unjustified and against the World Trade Organisation rules and principles.

The IREPAS chairman stated that, in spite of all such protectionist measures, the global long steel products market is currently in a positive mood amid good demand worldwide. He added that, had there not been protectionist actions like the additional tariffs, quotas or safeguard measures, the global business scenario would certainly be much better. Mr.Cebecioglu said that protectionism is like a virus, expanding and hurting the international trade environment.

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 : Two major events have impacted the market

Jens Björkman, chairman of the raw material suppliers committee, said that, since the previous IREPAS meeting held in September 2018 in Istanbul, two major events have impacted the raw materials market. The first of these events was the significant reduction in production by Turkish steel producers – the leading buyers of scrap in the world – and the corresponding reduction in their demand for scrap. Turkish mills’ scrap demand has stabilized somewhat since then but it still remains at low levels, a fact which scrap suppliers will have to get used to. Mr. Björkman said that most of the raw materials committee members believe that they will continue to see reductions in Turkish demand for scrap due to poor domestic market conditions in Turkey.

According to the committee chairman, the second major event that influenced the raw materials market was the iron ore waste dam collapse in Brazil, which has had a strong influence on iron ore prices. He added that iron ore prices increased by 20 percent within a short time and that prices have continued to move upwards. Mr. Björkman also touched upon some other factors affecting the raw materials market, namely, the low water levels on the Rhine which had made logistics extremely difficult and costly, leading to a slowdown in the accumulation of scrap at ports for export. He stated that the slowing down of the EU automotive sector in the last six months led to the lower availability of prime scrap for export.

The committee chairman said that there has been some buildup of scrap demand in areas such as Southeast Asia, South America and North Africa, which is balancing the reduced demand from Turkey though not entirely. Answering a question about the influence of the Section 232 tariffs on US scrap exports, Mr. Björkman said that in the past few months there have been some reductions in US scrap exports, partly because of lower import needs from Turkey and partly due to stronger demand in the US domestic market, adding that US domestic scrap demand is driving down the availability of scrap for exports.

Regarding steel production in the EU, he pointed out that it has declined somewhat in the first few months of the current year, while both demand for scrap in the EU and intra-EU trade have been active and strong.

Commenting on the financing of the scrap trade, Mr. Björkman said that, right after the currency crisis in Turkey, availability of letters of credit was tight in the country and financing costs for Turkish mills increased substantially, with the currency fluctuations making these issues much more challenging.

Traders at IREPAS: Safeguard measures have a major impact on trade

Representing the IREPAS traders committee, F.D. Baysal said that safeguard measures are having a major impact on steel trade. Referring to a question by his fellow traders, Mr Baysal commented on Turkey’s alternative markets and said that Africa will by no means replace the US and the EU as a destination for Turkish exports. Mr. Baysal said there are not a lot of places the extra supply in Turkey could go to and the only solution is reducing capacity utilization.

Answering a question regarding the potential for Iran’s billet exports, Mr. Baysal said that Iran is not likely to produce steel any cheaper than Turkey, Saudi Arabia or Algeria, while sanctions make it almost impossible to buy Iranian steel.

Mr. Baysal also stated that, while the Chinese government is taking serious measures and reducing production, Chinese suppliers will definitely not be absent from the global market but, as they are more contented in their domestic market, they will be less destructive in terms of pricing in the export markets. He added that the cut in VAT in China will help stimulate the economy.

Producers at IREPAS:  Importers have become exporters and vice versa

Mr Murat Cebecioglu, chairman of IREPAS and also of the IREPAS producers committee, said that GDP is growing in most countries worldwide although growth is slower than expected in some markets. Nevertheless, he added that things are getting better, which signals good demand. The IREPAS chairman said that protectionist measures are spreading like a virus throughout the world, changing trade flows.

He pointed out that importers have become exporters and vice versa. Mr. Cebecioglu stated that US President Trump totally destroyed the markets with tariffs and that others are following suit, starting a chain effect, increasing customers’ costs and ultimately causing economies to slow down.

Answering a question about the troubled Turkish exports, Mr. Cebecioglu said that the main export markets for Turkey have become Yemen and Israel, with the US and Canada being out of reach. However, the committee chairman reiterated that the Turkish steel industry has gone through difficult times before and will get through this one as well.

Prices in the global long steel products market are better compared to our last report, though there is a certain degree of uncertainty regarding how sustainable the current price levels are. The situation has gotten worse generally in terms of demand and supply, as there seems to be a general worsening of expectations and the numbers coming in do not bode well.

Brazilian dam accident pushes up iron ore prices

Scrap prices have again started to increase slightly, which means the recent improvement in long product prices has no positive effect. Iron ore prices have risen due to several force majeur declarations following the dam collapse in Brazil.

Turkish mills maintain rebar production at low levels

Turkish mills have reduced their production considerably and at the same time the sudden increase in scrap prices has pushed up their rebar prices. If Turkish rebar production continues to run at low volumes, then it will be difficult for scrap prices to continue at their current levels. If production increases, then we might see another drop in rebar prices.

Margins still better than average in US where there is not much room for imports

Margins have been reduced in the US, but they are still better than average. With lower domestic prices in the US and the 25 percent tariff, there is not much opportunity for import trade.

EU market faces many uncertainties

Many in the EU are very much concerned about a hard Brexit, the ongoing trade wars, the potential impact of the recently introduced safeguard measures, the American market situation, exports from Turkey, the GDP forecast in Germany, the expenditures of the new government in Italy, etc. If Germany is to correct its GDP growth forecast from 1.8 percent down to 1.0 percent, then other EU markets may follow suit. German stocks are also under pressure, which does not encourage a positive outlook for the EU overall.

US and EU markets expected to improve pricewise

Having said all the above, the US and EU markets are expected to improve pricewise. However, we need to wait until the Chinese New Year holiday is over to see where the rest of the world will be heading.

Less pressure from Chinese supply, but what will happen after the holiday?

There is obviously less pressure on the market from Chinese supply offers due to the somewhat higher prices offered and the Chinese New Year holiday. Chinese origin steel prices are very high and not competitive for the time being, giving suppliers of steel from other countries the chance to fill the gap. Chinese exporters usually push up their prices after the New Year holiday, and so we will have to wait and see what move they will make after the holiday.

Temporary end to US government shutdown is welcome, but other issues remain

The US government shutdown is temporarily over, which is good news, but there is still no mention of revoking the 25 percent and 50 percent Section 232 duties which were imposed citing the defense of US national security. Perhaps an agreement may be reached by President Xi and President Trump by March 1, which would obviously be positive news.

Industrial output recovery after year-end provides a boost

Industrial output has recovered after the end-of-year slowdown, and sentiment seems to have improved somewhat, and global growth, although slightly lower, is still pacing at decent numbers. 2018 saw strong production development in most regions, apart from Europe and Turkey.

Scrap prices show clear rebound from bottom levels in early January

Restocking and the industrial ramp-up to normal levels have been strong during January and, with winter drawing down scrap flows in the northern hemisphere, scrap pricing development saw a clear rebound from the bottom during early January.

Competition generally at high levels and heating up further

Competition in the market is high as usual and is even heating up further as we can see. Ukrainian suppliers have been exporting rebars to the Far Eastern market for the first time in a long time, competing with exports from Turkey and Qatar. Elsewhere, competition is slackening in the EU market. EU mills are expected to set their goals in the coming period and will start dictating prices sooner rather than later. With the continuation of trade restrictions, the global trade will see further suboptimal effects.

Current market characterized by instability and uncertainty

The current status of the market can be described as unstable given the uncertainty caused by Brexit, the government shutdown in the US, the situation in Venezuela, the Chinese New Year holiday and the difficult winter conditions in North America and the north of Europe. The scrap market outlook and the future of ex-Brazil iron ore only adds fuel to this uncertainty.

Difficult to make predictions: Implementation of EU measures and post-holiday period in China need to be watched

Under these circumstances, it is pretty difficult to make any predictions for the market. The picture will become a little clearer with the full implementation of the measures in the EU and the end of the Chinese New Year holiday.

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The association said “a huge volume” of low-priced imported iron ore has severely impacted the domestic mining industry and represents a “big challenge” for the security of the local steel production. According to the local Chinese association, capacity from major producers has continued to increase and requires “a massive Chinese market to absorb their great excess.”

Imports have accounted for about 85 percent of China’s total iron ore consumption, leading domestic miners in China to shutdown or diminish capacity utilization. The association also accused Vale, Rio Tinto and BHP Billiton for dominating the global iron ore trade defying and expanding the market, “despite prices being low, since their strategy is to use low-priced dumping to crowd out higher-cost miners.”