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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The restricted products include reinforcing bars, wire rods and flat steel products, as well as steel pipes and fittings, profiles, iron and steel construction materials, iron-steel wire, cement, aviation and jet fuel and metal processing machinery. It was reported that the measure will remain in effect until Israel declares a ceasefire in Gaza and allows an uninterrupted flow of humanitarian aid to the Gaza Strip.

Meanwhile, in the January-February period this year, Turkey exported 49,990 mt of rebar and 11,387 mt wire rod to Israel. In the given period, Israel was Turkey’s second and fourth main market for reinforcing bar and wire rod exports, respectively.

Raw material costs are increasing once again and energy prices are expected to be very high at least until March 2023. Mills are facing cost pressures once more in the global long steel products market. Business activity has been reduced during the past month and, even though scrap and iron ore prices have gone up, net margins have either at best kept pace or in some cases narrowed. In this overall context, the first quarter of 2023 could be a very difficult one for the global long products market, even the worst quarter in a long time.

Mills will be forced to cut outputs further to avoid incurring losses

It looks like some mills are trying not to reduce their outputs too much or only as much as necessary as they will be finishing this year with positive results due to the good performance recorded in the first half of the year. However, the situation will probably be a lot different next year and they will be forced to reduce outputs further in order to minimize losses on their balance sheets. Another reason is that, if they continue to maintain their production levels and sell at a loss, it is very likely that they will face trade measures. In these circumstances, it will take some more time for a new supply-demand balance to be seen in the market.

Uncertainly prevails in EU market over supply and energy costs, imports an option

The gap between domestic and import prices has shrunk so much in the European market that more and more mills have bought domestic, respectively inner EU material in small volumes as uncertainty prevails. Steel buyers in the EU market have started to become nervous about what will happen after the holidays, as the anticipated longer revamps by mills will very likely limit supply. On the other hand, there is a big question mark over the weather conditions in the first quarter of next year. If temperatures remain mild, then demand for construction, which has been healthy so far, will pick up earlier and help mills to raise their prices. However, there is also uncertainty in relation to energy prices, which places a question mark over everything within the EU.

Economies doing better than expected, Buy American package in US could stir up trade battle

After the shock of the war in Ukraine and of energy price hikes, the markets seem to have digested the interruptions of logistic chains and economies look better than expected. The general outlook for 2023 is also better now. That said, in the US the new Buy American investment package will be in force from January 1 and it will be a huge challenge for the EU. A new trade battle could be in the offing.

Possible new official stance on Covid in China could boost steel demand

Covid-19 seems to be under control everywhere except in China. There are some signs that China may quietly dismantle its zero-Covid policy after the Chinese New Year holiday in January. This will hopefully lead to an increase in demand for all steel products.

Softer approach to interest rates could also have a positive impact on steel demand

December is a short month, and there is pent-up insecurity on what energy costs will be like in January, or even tomorrow. On the other hand, we understand governments are concerned about markets and so they talk more softly about interest rate increases and the central banks also appear to be easing off on the issue of interest rates. This may also have a positive impact on demand.

Competition becomes fiercer and increasingly regionalized

Competition in the market is very difficult and fierce wherever allowed. Otherwise, it is more and more regional as markets are increasingly protected. Domestic mills compete with each other and with possible imports. Volume chasing by domestic mills is very detrimental, leading to even lower prices, without the increase in additional volumes.

Outlook for the current unstable market is very challenging and unpredictable

Under these circumstances, the current status of the market can be described as highly unstable and unpredictable. The outlook is also very challenging and unpredictable. The outlook for the first quarter of 2023 is negative and it could be the worst quarter in a long time. The situation is certainly tough, but with the end in sight.

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Demand in the global long steel products market is either very low or there is no demand at all, depending on the region. Overall demand is less than real supply and possible supply increases. The demand for ferrous materials has also slowed down considerably as industrial outlooks have lost visibility. Energy cost uncertainty and the destruction of demand have led to order cancellations. Demand is not expected to improve in the coming months and therefore operating under current conditions is not sustainable for the steel industry. More closures will follow in the coming months especially for those who also suffer from the consequences of the war in Ukraine.

Chinese traders start to short the market

Customers are delaying purchase decisions while Chinese traders are shorting the market. Steel mills are in trouble and even those in Asia are entering the red zone. Energy prices have been softening thanks to the warm weather but may go through the roof again at any moment.

Private sector construction activity in EU almost completely dried up

Private sector construction activity has almost dried up completely in the EU market, which places small and medium-size cut and benders in real difficulty. Industrial and public projects are still available in good volumes, but everyone is fighting for them now and undercutting prices to an extent we saw at the beginning of the pandemic when some market participants believed prices would fall through the floor.

EU mills doing everything to maintain prices at certain levels

However, domestic mills in the EU are doing everything to maintain prices at a certain level and, even if they have reduced sales prices a lot in the last couple of weeks, their clear aim is “profit before volume”. The uncertain situation for mills in relation to gas and electricity bills remains unpredictable, which makes it difficult to push prices down. However, more pressure is coming from imports. Demand for construction, on the whole, is still good in Europe. At least in Germany, demand is still good despite the pressure on prices. Those who have full order books are in a good situation and can sit and wait if they have covered their needs.

US market outlook becomes more unknown and negative, mills still see record profits

In line with the general international market, the US market has also changed to a more unknown and negative outlook. With the expectation of raw material prices coming down, there is an expectation that all pricing will undergo a correction. With this expectation and the approach of the end of the year, most service centers are reluctant to replenish their inventories. The steady rise of interest rates also increases the expectation for a slowdown in the economy and in future construction, especially housing and commercial construction. Although all pre-financed projects are keeping demand high, the future is more uncertain, especially after the mid-term elections in early November. Unemployment is still very low, making it difficult to find qualified workers both at warehouses and ports. Ports are still very congested, making cargo movements even more difficult. Protectionism is on the rise even with this administration, with so many roadblocks at every step to discourage imports. In spite of all such negative developments, the US mills are still turning in record profits, even though the July-September quarter showed less earnings.

International market under pressure from very aggressive prices from Asia

In general, market prices are under pressure from Far East and Southeast Asian mills who are being very aggressive. The GCC countries are also offering very low prices which makes it impossible for Turkish producers to compete in the long products market. Even the Turkish market has become a battlefield for some exporting countries like Russia, India and China for some other products. The coming holiday season will probably make things worse. Turkey has been squeezed between low-priced semi-finished steel products and a stronger India than normal. In China, iron ore prices have fallen to two-year lows amid renewed fears of more Covid lock-downs.

Freight rates become more predictable – a positive development  

Freight rates are becoming more predictable, which may be considered as more good news for the market. Logistic costs are slowly moving towards “normal” but are still at high levels. At least the availability of vessels, barges and trucks is better now.

India still shows strong appetite for raw materials

Moreover, lower ferrous scrap flows have mitigated demand cuts to some extent. India has also had a strong appetite for raw materials for some time and this is expected to also continue well into 2023.

Competition still very high, except for US and EU which remain protected

There are still different global markets from the point of view of competition. The US and the EU are protected and not part of the competition in the global market. Competition is very high elsewhere, particularly in the Middle Eastern and Far Eastern markets. China has been more and more aggressive lately and offers of semi-finished products out of the Gulf region are very competitive. Freight rates are the only factor limiting competition in faraway markets.

Current market situation and next quarter outlook both unstable and negative

Under such circumstances, the current situation in the global long products market may be described as unstable, while more negative news continues to come from Russia’s war in Ukraine. The outlook for the next quarter is also unstable and negative. The January-March period may be worse than the height of the pandemic, driven by lower prices in Asia and continuing impacts from the ongoing war in Ukraine.

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At the opening of the conference, Murat Cebecioglu, chairman of IREPAS, emphasized that the situation in the global long steel products market is deteriorating as we have entered a rising-cost business cycle, adding that the situation is dramatic and huge uncertainty lies ahead.

The IREPAS chairman said the current crisis is a once-in-a-generation event with mills and consumers facing an unprecedented increase in energy prices, particularly in the EU, but also almost everywhere else. In addition to the energy crisis, there is also a logistics crisis, he said, adding that production cuts are expected soon, which will balance the drop in demand caused by higher interest rates and costs, as well as by shortages of many items.

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: Lower scrap demand prevails in market, except in South Asia

Jens Björkman, the chairman of the raw material suppliers committee, summarized the committee meeting findings stating that energy prices, especially in the EU, were the main topic of the conference. He added that during summer and autumn all-time record high levels were recorded for natural gas and electricity prices. The committee chairman indicated that interest rates have been hiked to tame inflation, pushing the US dollar to an all-time high against other currencies.

Commenting on scrap demand, Mr. Björkman said that US scrap demand had slowed down and that mills there are running at slightly lower capacities, pressuring scrap and iron ore prices, adding that supply of new production scrap which was previously in good shape has been slower. Also, for China, he noted that, despite a significant stimulus, demand for steel and raw materials has been weakening, with the outlook remaining negative. Scrap demand is significantly lower in some parts of the EU, and this has been offset by Southeast Asian demand where energy problems are not so severe. Also, logistics are another issue for the EU market given the all-time low water levels on the Rhine River, as Europe’s river system is an important part of the EU’s scrap exports.

According to the chairman of the IREPAS raw material suppliers committee, the demand situation in Turkey, which has also been struggling with high energy prices, is under pressure from alternatives to scrap such as semi-finished products, which it has been possible to get at lower price levels. Mr. Björkman explained that Turkey is not only buying Russian billet, but also ex-Asia billet, and that the pressure coming from cheaper billet is affecting Turkish mills’ ability to buy scrap. He added that, thanks to the alternative destinations for scrap such as some Asian countries, the pressure on prices in the market which Turkey was able to exert has been mitigated, though these alternative destinations are not likely to become permanent markets, and so Turkey will maintain its role in setting a benchmark in the international scrap market.

Regarding the possibility of a ban on scrap exports by the EU, Björkman said that it is becoming a likelihood and that any potential ban seemed to be targeting non-OECD countries at first, but now OECD countries seem likely to be included as well. The European Parliament will vote on a ban on November 17 and it could come into force in 2026. He added that the scrap tonnage recycled in the EU is too large; even if a few million tons will likely remain in the EU, the rest will need to find other markets.

Traders at IREPAS: Trade routes are changing due to both war and energy crisis

F. D. Baysal, chairman of the traders committee, commented on the changing trade routes for Russian steel after the start of the war in Ukraine, indicating that Russian steel is mostly going to China, Egypt, Taiwan and Turkey, and “to our surprise 3.5 million mt of Russian slab is still going to the EU, to the mills that are Russian-owned”, he added. He went on to talk about energy prices, another topic of heated discussion throughout the conference, pointing out that the EU is affected the most, but even within the EU not every country is affected to the same extent.

According to Mr. Baysal, in Germany the cost of energy stands at $470/MWh, while it is at $200/MWh in Spain, which is similar to Turkey. Although energy prices have risen worldwide, there are countries with serious advantages like the US, an exporter of gas, GCC countries, and also China, since they are getting Russian gas, as he reminded participants.

The committee chairman said that the traders committee does not expect a lot of changes in the EU policy regarding steel import quotas for Turkey, “I don’t think EU mills will allow that,” he added. Mr. Baysal indicated that some suppliers such as North African countries and the UAE are now exporting to the EU and will eventually gain some market share in the region. He stated that the markets for Turkey are limited, Turkish supplies are mainly taken by countries that are not as much affected by the energy crisis like China or India. Apart from this, access to the US market is limited due to Section 232 and to the EU because of the quota.

Regarding steel imports into the US, Baysal said he does not expect a huge increase in imports, as there is not a strong increase in demand, while he added that there are countries that are exempt from Section 232 like Mexico, Canada and the EU, though  EU has a disadvantage in terms of energy.

Answering a question on semi-finished steel imports from Southeast Asia to Turkey and Europe, the traders committee chairman said that he does not think it is going to be permanent, as, when energy costs go back to normal, the EU will buy from its traditional sources. However, he admitted that North African countries such as Egypt and Algeria or GCC countries such as the UAE will gain some market share in the EU and may be able to hold on to it.

Producers at IREPAS: Energy prices and inflation put pressure on production

Murat Cebecioglu, the chairman of IREPAS and of the IREPAS producers committee, informed the participants about the situation in certain countries, stating that many countries have been negatively affected by inflation rates, energy prices and declining steel production, while the US market remains stable, with its imports going down, an increase expected in its rebar consumption amid new infrastructure projects, and more capacity coming from domestic micro mills. He also noted that, in some other countries such as Qatar and Kuwait, the situation seems a bit better with some infrastructure projects planned.

Commenting on declining steel production, Mr. Cebecioglu said production cuts are already seen which will probably balance the drop in demand, though huge uncertainty remains for the next few quarters, also fueled by some political issues, adding that doing business will be extremely difficult not only in the EU, but elsewhere also.

He went on to say that for Turkey energy costs are the main issue causing a reduction in production and uncertainty is not helping mills to make long-term plans.Regarding Turkey’s sales prospects, “Right after the start of the war, Turkey was able to sell huge quantities to the EU, but now the EU has found other sources that are not included in its quota system,” the committee chairman noted. He underlined that, today, with Asian countries such as Malaysia and Indonesia selling to the EU with CFR prices which are lower than Turkey’s FOB prices, “there is no way Turkey can compete”.

Answering a question regarding the disturbance caused in the markets by Russian supplies, Cebecioglu commented that, from 2024, Russian slab and billet will be banned in the EU and Canada’s announcement that it will sanction any imported steel produced from Russian material causes hesitation to use Russian material. He added that Russian exports are disturbing prices in many markets and producers globally are suffering, with only limited markets remaining for sales opportunities.

The war in Ukraine has changed sentiment in the global long steel products market as well as fundamentally altering the flow of raw materials and finished products almost overnight. There is more demand than secure supply in the market. Before the war, the expectations were that demand would determine the direction of prices, contrary to 2021 when supply was the driving factor. Today, however, supply has definitely taken the lead again and the market is in fact distorted.

Sanctions on Russia to continue for some time to come

Hot rolled coil prices ex-China are lower than slab prices, which in turn are lower than prices of basic pig iron. We hear of a new set of sanctions every day, for different targets using different means, issued by different countries, besides which the payment side is totally confused. There are many different ways of approaching the sanctions. Disruptions of supplies of semi-finished and finished products have opened new opportunities for others, especially for Turkish mills who share the same geographical region. However, nobody has any clue how far this madness will go, but one thing is for sure: the sanctions on Russia will remain in place for some time to come.

Price imbalance emerges between Asia and rest of world, European prices the highest

The Western hemisphere has stable demand with short supply depending on the product. There is stable demand also in the Eastern hemisphere, but the strong presence of Chinese and Southeast Asian producers results in a price difference between these two regions. Consequently, there is a price imbalance between Asia and the rest of the world. The difference between Turkish origin reinforcing bar and wire rod prices and Chinese, Vietnamese or Malaysian origin reinforcing bar and wire rod prices is more than US$100 per ton. The price difference between the North American and the EU/UK markets is even greater. International markets are becoming more regional than ever. European steel prices are now the highest in the world. Asian and especially Chinese prices are substantially lower than anywhere else. The steel trade is changing direction from selling to Asia to buying from Asia.

New destinations sought for Russian raw materials and semi-finished products

Russian raw material and semi-finished products are searching for destinations that are willing to import and at new discounted prices. It seems that Russian finished products are not being exported yet at all.

Demand and prices increase in EU amid reduction of mills’ capacity utilization

EU mills are concerned how all these disruptions will impact their production and are not willing to make any long-term commitments. Sales from stocks on a daily basis are becoming fashionable and the market has no other option but to accept this situation. The reduction of capacity utilization rates and the fears of stoppages by some mills are resulting in higher demand from the market than usual, as construction companies want to secure material for their projects. Prices have increased significantly with the lack of import options supporting the upward movement. Brussels is not ready to lift its safeguard measures despite strong protests from downstream industry.

Supply and demand stable in the US

Demand in the US is the same and supply from domestic producers has not changed either. However, considering the fact that the mills are running at full capacity, it is fair to expect that any increase in demand will have to be compensated for by imports. Import restrictions and therefore prices from regular suppliers have increased dramatically due to the war in Ukraine. With this, the prices in the US are also on an upward trend, catching up with the rest of the world.

Lower capacity utilizations and shutdowns in EU make more scrap available for Turkey

Scrap exports from Russia and Ukraine are almost at a standstill. However, EU steel mills have refused to pay more for scrap and have reduced their capacity utilization rates. There have even been complete shutdowns in some cases, creating extra supply of scrap in the market for Turkish mills. As a result, the Turkish mills have compensated for the missing quantities from Russia and Ukraine by the extra availability of European scrap, which has helped them keep scrap prices under control while at the same time they are exporting extra volumes of steel to the EU market.

New opportunities but also imbalances created by absence of Ukraine and Russia

The sudden disappearance of two major steel supplying countries in the global market has suddenly changed the supply and demand balance in favour of suppliers in other countries. The spread between raw material to product has become much bigger than predicted at the beginning of the year. The situation certainly creates many new opportunities but also major imbalances.

Competition from Asian mills increases gradually

Competition in the market is very regionalized, except for some products suffering from the impact of the conflict. The traditional competition from CIS-based and European mills has disappeared. The new competition, which has been slowly appearing, is from Asian mills.

Some weeks needed for unstable market to find equilibrium, outlook still very uncertain

Scrap price increases will continue, but the war is a major negative factor for the market. It will take some weeks for the market to find its equilibrium. Under the current circumstances, the market can be described as fluctuating and unstable. The outlook is very uncertain as the fundamentals may change daily.

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The global long steel products market has entered a new and completely unprecedented situation as a result of the war in Ukraine. The current situation means one of the largest suppliers of many raw and semi-processed materials will be completely excluded from the market for an unforeseeable period of time, with the consequences being almost impossible to predict at the moment.

Supplies of raw materials and semis from northern Black Sea at standstill

There will certainly be difficulties which, in fact, have started already, with the supplies of raw material and semis from the northern shores of the Black Sea. The situation will definitely push prices up due to the reduction in shipments in general out of Russia and Ukraine, and the depth of the impact will be shaped by the extent of the measures against Russia and the duration of the conflict. We may see further shortages in energy supplies, which will increase costs further. The price increases for all steel products and the supply shortages will be greater and more serious than many people expected. There will be a long-term disruption of trade and shipments.

Will the steel industry have enough raw materials for April? No firm prices for anything

The steel industry does not know if it has enough raw materials to operate in April, nor does it know what the price will be for those raw materials that are available for purchase.  The steel industry is not quoting firm prices for anything, and any price mentioned would have been inconceivable before the last week of February. A significant part of commercial billet and slab has suddenly been put out of the global business. The CIS is a major part of this trade along with pig iron and iron ore pellets. We are currently going through a massive remapping of logic. Materials need to be covered from other sources in an already limited market. Conditions are extremely tight, which also shows in short-term pricing spikes.

Russian exporters hit by sanctions

Russian exporters have hit a brick wall in the Black Sea. There will be enormous problems with shipments whether westwards or southwards, as well as financial and logistical difficulties. Companies from the countries that have joined the sanctions will be making sure that their supply chains are not using material from the sanctioned countries. Ships that load cargoes at Russian ports will be subject to sanctions themselves: they may lose insurance and their cargoes will not be insured. Many customers will not take the risk of buying products of Russian origin.

Far East ports and China to remain best option for Russia’s exports

On the other hand, Russian mills are expected to maintain production but flows of steel will be from their Far East ports and by rail delivery to China.  Russian mills have the absolute lowest cost of production and by far the lowest marginal cost of producing one ton of steel. So, if they can ship and get paid, they will flood the Asian markets including the Indian subcontinent with increased quantities. This will affect the flows of everyone else in Asia and may not be welcome by the Chinese steel industry. China is the most stable steel market in the world today and it does not want instability.

China set to become dominant billet supplier to North Africa

China will probably become the dominant supplier of billets to North African markets, in competition with Turkish suppliers. The overall situation is bleak. The world is now very short of BF and DR pellets. The shortages of pig iron and HBI already existed.  For many users of such raw materials, Ukraine and Russia were the No. 1 or No. 2 supplier.

Scrap market in chaos, exporters delay new sales to compensate for previous losses

Scrap exporters sold at least 1.3 million metric tons of scrap to Turkey for March shipment and most of this tonnage is yet to be collected. After the Russian invasion of Ukraine, all markets are upside down and the cost of scrap in all regions is going up. At present, the demand is for April cargoes and sellers are busy trying to complete their old-priced tonnages for March. When the scrap market moves up further, the cost of collection also rises further, increasing losses for March, but this seems unavoidable. Accordingly, exporters are trying to delay their new sales for April as much as possible in order to compensate for the mentioned losses, making the current market situation even worse.

Price in US may have hit bottom

In the US market, prices had been softening until recently and have maybe hit bottom now. demand is strong, but domestic mills seem to satisfy most of the demand. Most international mills have stopped giving offers, so no new offers are available anyway. The holiday season is almost over. The only remaining holiday is Ramadan. Furthermore, we are almost at the end of the pandemic, unless another variant surprises us. Prices will go up in some places and prices could at the same time go down in others. Anyone who is not afraid of sanctions will be able to enjoy very cheap Russian and Belorussian origin raw materials and steel.

Not much competition in global longs market, severe competition for scrap

There is not much competition in the market. Prices will explode due to logistical problems and competition will be more and more regional. On the other hand, there is already severe competition among scrap importing countries to obtain scrap, and this is expected to continue. Winter conditions will be over by April, so scrap flows will be normalised. However, the loss of volumes from Russia and Ukraine will have to be compensated for somehow.

Market is currently unstable, outlook is extremely unpredictable

The current status of the market can be described as fluctuating and unstable. The outlook is also extremely unpredictable. Regardless of whether the steel industry does quite well, major questions will exist around increased inflation and possibly lower growth, perhaps stagflation.

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