The supply and demand situation in the global long steel products market is not getting any better, which continues to put pressure on producers. The increasing political influence on trade flows and particular markets in the form of antidumping and/or countervailing duties including also supply chain restrictions are leading to a more and more regionalized trade with a fairly unhealthy supply and demand balance.

Market unlikely to improve as China keeps exporting and holiday season approaches

As long as China keeps exporting over 6 million metric tons of steel products per month, it appears highly unlikely much improvement will be seen in the market. We are also approaching the end of the year, in other words, the holiday season, which is another factor that will contribute to a slowdown in the markets.

Turkish exports hit by war in Israel, Yemen’s involvement and poor EU demand

The recent situation in Israel and now Yemen’s possible involvement will have a big impact on Turkish reinforcing bar exports. On the other hand, EU demand is not improving and does not offer much hope to Turkish mills in the near future. Capacity utilization among Turkish long product producers is around 50 percent

Some price improvement in EU, but demand remains weak

In the EU, prices have recovered from the lows of the summer due to the shortage of stocks. Going forward, demand remains weak, but mills’ offers are defined by rising scrap and energy costs.

Demand for long products slows down in the US, where as flats are strongly up after end of UAW strike

In the US, demand seems to be slowing down for long products as most buyers are reluctant to purchase material that will arrive at the end of the year, in order to avoid year-end taxes. The US domestic market has seen some good news with UAW and auto producers more or less agreeing terms and returning to business and unprecedented gains on flat products. The end of the UAW strike was one of the reasons of the significant increase in HRC prices seen.

Imports are on the decrease and mostly coming from two neighboring countries subject to zero Section 232 duty, making business more regional, like in Europe. There are more protectionist measures being discussed, with the ineffectiveness of the WTO helping to make globalization history.

Scrap generation in Europe on low side

Slow economic development in Europe has slowed the availability of scrap. The recycling business has been struggling to generate sustainable volumes. There is low demand from the European steel sector and yet lower scrap generation. North American scrap is exported at comparatively lower prices than US domestic prices, at up to US$50-75/mt lower depending on the calculation. However, the volumes for many of the export markets are heavily reduced.

Sanctions against Russia likely to be tightened, US and EU to maintain trade remedies

The sanctions against Russia will be tightened. It looks like the US and the EU will maintain their trade remedies despite the WTO rules. They are even discussing further action against China.

China’s demand keeps raw material prices at relatively high levels

Strong demand for iron ore from China has been pushing up scrap prices, which have thus been maintained at higher-than-expected levels. It is hard for steel mills to decrease prices when raw materials are relatively expensive. China, on the other hand, has started raising its export prices, but whether the prices will hold is questionable.

Market status unstable for some regions, stable at low level for others

Under these circumstances, the current status of the market can be described as unstable for some regions and stable but at a low level for others.

Outlook for next quarter pessimistic or quiet and sideways at best

It looks like all the engines are slowing down, but inflation is also coming down. The outlook for the next quarter is pessimistic or quiet and sideways at best, but we may look for better times in the second quarter of 2024.

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Supply is still on the short side in the global long steel products market and this situation will probably not change until the second quarter. Chinese demand for raw materials and semi-finished products has been providing the main boost to the markets. As vaccines have started to be released, depleted supply chains have to be replenished, with plans being made for stronger production. Order books have filled up well. Along with the continuing high demand in most domestic markets and especially in emerging economies, international availability is still tight.

Buyers complain about prices but willing to pay amid short supply

Massive stimulus measures across the world never seen before have exerted pressure on the US dollar, boosting commodities and assets. The market is out of kilter: however, no one will complain about volumes, though consumers and buyers have been complaining about prices. Nevertheless, they are still willing to pay in order to buy in steel under the prevailing conditions of short supply.

High spread between raw material and steel prices will stimulate higher production

The spread between reinforcing bar and wire rod prices is probably at its highest level ever. We are also observing the highest spread between raw material and steel product prices for years, which will surely motivate steel producers to ramp up production.

Focus likely to remain on scrap markets in the coming years

It seems that everything is evolving around scrap, which looks like being a leading focal point in the coming years, which may lead more Chinese capital into the scrap business. The rapid increase in scrap prices and the rise in demand before the holidays will keep everyone busy for the next few months.

China seeks to speed up steel industry conversion towards scrap-based production

The Chinese steel industry wants to speed up its conversion towards scrap-based production. Imported scrap may cool off domestic scrap pricing in China and may also bring in higher quality material which is hard to find domestically. Up to now, Chinese domestic scrap was priced much higher than scrap in the international markets. The markets will probably balance out and rewrite the logical trade routes back to how they looked some years ago. Japanese and some US West Coast scrap will be redirected to China instead of South Asia. Of course, the Chinese mills will not import if overseas scrap is more expensive than domestic material.

Scrap prices may be buoyed up by recent developments in Russia, China and US

Mills in the EU and the US will probably have to find new strategies for the time when there will be more competition for their domestic scrap. Will they force their governments to take action on scrap exports as the Russians have done, which is clearly against WTO rules?  Russia’s revision of the minimum tax on scrap exports, China’s lifting of the scrap duties on imports and the healthy local market in the US may very well keep scrap prices up.

Supply problematic in US market, buyers increasingly cautious

Demand in the US market is the same or a little down, as is expected during the winter months, but supply is problematic. Most exporting mills are fully booked and their next allocations are for arrival in the second quarter at best. Since import offers in the market are now for arrival four to six months later, customers are reluctant to make decisions so far forward especially at the current high price levels. They are opting instead to buy domestically only one week at a time. Now the worry is about possible cancellations when prices come down from such high levels.

Steel production picks up in Europe and the Americas

As the world is reawakening, domestic steel production is also much stronger in Europe and the Americas. Stronger levels are expected over the next quarter. Industrial demand is also picking up.

Vaccines hold out hope for return to normality

With everyone weary of the pandemic and the restrictions which have been holding us hostages in our homes, we are all eager to get out on the street and to start spending even before the summer arrives. Hopefully, the vaccines will help us get back to normal. Emerging from the pandemic and beginning to look at where new opportunities will arise will surely boost economies and employment figures should increase.

Competition varies across markets, prices unstable at high levels

Competition among suppliers in the markets has lately ranged between reasonable levels to being almost nonexistent. The current market situation can be described as stable. The volumes in the market are fine, but market prices are unstable at lofty levels.

Outlook satisfactory for first quarter at least, unclear for second quarter

The outlook for the next quarter is satisfactory, but the situation in the markets in the second quarter will depend on many factors that are as yet unknown. Prices may drop down any time for any good reason and developments after the Chinese New Year may be important. The fact that the incoming US administration is planning to put more funds into infrastructure is positive, but the effects of such action may only be observed from the second half of 2021. When prices are as high as they currently are, the next vital factor is management when the correction actually happens.

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Accordingly, Turkey claims that the EU safeguard measures, in the form of tariff-rate quotas and additional duties, and the investigation that led to their imposition, are inconsistent with a number of provisions of the Agreement on Safeguards and the General Agreement on Tariffs and Trade (GATT) 1994.

The EU initiated the safeguard investigation in March 2018, with provisional measures being imposed in July 2018. In February 2019, the EU decided to apply a definitive safeguard on 26 categories of steel products through June 2021.

On 14 February, 2020, the European Commission initiated a second review of the definitive safeguard measures. The first review was opened in May and closed in September last year.

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.

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

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

According to the notification made to the WTO, imports from developing countries shall not be subject to the proposed provisional safeguard measure as long as each country’s exports individually do not exceed three percent of total imports into Egypt. In addition, the share of the countries with less than three percent import share do not collectively account for more than nine percent of total imports into Egypt.

The products subject to the provisional duty currently fall under Egyptian Customs Tariff Schedule Numbers 7207, 7213 and 7214.

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.

The global long steel products market is heading towards a more complicated and difficult period as the globalization of the steel business is being rewound amid a clash between liberal and protectionist trade policies that are somehow tied to political ups and downs between world leaders. It seems that global business will be relatively quiet as long as protective measures are in place.

China still not expected to repeat the mistakes of 2014 and 2015

World steel production increased by about six percent during the first 10 months of last year, according to worldsteel, with China indicating an increase of over ten percent. Obviously such a situation creates some worries, but China is still not expected to repeat the same mistakes as it did back in 2014 and 2015.

Turkey to be hit hard by EU import quotas

The EU has proposed and is expected to vote on January 16 on product and country specific import quotas for several steel products including but not limited to reinforcing bars and wire rods. While the major portion of the quotas are given to Turkey, it will be very difficult for both European importers and Turkish exporters to manage such relatively small quantities when compared to the actual current total of Turkish reinforcing bar and wire rod exports to the EU. Most probably, the quotas in question will be filled immediately, and so EU producers will have a relatively good year. However, buyers in some European countries which are not self-sufficient will end up paying higher prices as a result of such safeguard measures.

Coming months expected to be very challenging for Turkish exporters

Furthermore, Turkish mills are in a difficult situation as their traditional export destinations are closing one after the other. At this point, price is not the issue anymore as there are not many markets left to which they can sell. As a result, the coming months will be very challenging for Turkish exporters.

Traditional trade flows have been unnecessarily diverted or stopped, impacting end-users

Overall, the long products market seems to have a good balance of supply and demand as Turkish tonnages are absent. However, the traditional trade flows have been unnecessarily diverted or stopped and this will have a substantial impact on the downstream industry and end-users.

Supply in the US now practically limited to domestic production

Demand seems to be slowing down in the US, due to the shutdown in government spending, slowing housing starts, and with the weather as possibly the most important factor. Supply in the US is practically limited to domestic production, while prices do not justify the Section 232 duty. Despite the general 25 percent tariffs on imports into the US, US consumers are still importing and paying. The international markets, besides the EU and North America, have gotten worse. HRC prices in the US have now reached the same levels as in the pre-tariff period.

Raw material prices soften under impact of low demand

Raw material prices, especially prices of ferrous scrap, seem to be going down in line with the low level of demand. On the other hand, consumption of steel ranges from stable to up a little.

Lower oil prices provide some relief for international business

Despite the ongoing complications and trade restrictions, business still goes on. International business has just got a break due to lower oil prices, which mean lower bunker prices and most likely a weaker freight market as there is less chasing of tons. However, if negotiations with China and the EU do not give positive results, the markets may become even more depressed.

Competition becomes difficult in unpredictable market

The market is fluctuating and is quite unstable and unpredictable at the moment. Under these circumstances, competition in the international arena is becoming difficult. That said, not many players are worried about the strong competition as the focus is on the next business.

Next quarter outlook very good for EU and US, but quite unstable for international business

The outlook for the next quarter is very good for the EU and the US, but is quite unstable for international business. Turkey is, of course, in a tough situation given the existing trade measures implemented by the US and the EU, whereas the rest of the world should enjoy a good year in long products as China is expected to control output and exports to a certain degree. On the other hand, new capacities are coming into Vietnam and Malaysia, which may create some weakness in Asia.

Politics and trade do not mix well

We all agree not to tolerate unfair trade practices in order to avoid injury to the steel business. However, if such an issue is resolved via politics instead of through WTO rules and regulations, the whole industry will suffer in the end. There are some producers applying for safeguard measures, complaining that their markets are under attack from cheap imports, even in the case of some markets which are already heavily protected by existing regulations, as the producers are seeking to put pressure on politicians and government authorities. The next year is likely to be full of surprises and irrational decisions made by politicians and organizations. If politicians actively interfere in trade and industry, it will make the outlook worse.

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Accordingly the import quotas will be in force between July 1, 2019 and June 30, 2020 and that the quota volumes will be increased by five percent for the period between July 1, 2020 and June 30, 2021. Additionally, the quotas will not be imposed globally but will vary depending on the country for each product. The said quota allocations are as follows:

Reinforcing bars:

CN Codes : 7214 20 00, 7214 99 10

Country                               2.2.1019 – 30.6.2019              1.7.2019 – 30.6.2020            1.7.2020 – 30.6.2021

Turkey                                   117,231.80 tons                       301,537.50 tons                         316,634.37 tons
Russia                                     94,084.20 tons                      241,998.46 tons                        254,098.38 tons
Ukraine                                   62,534.65 tons                       160,848.36 tons                       168,890.77 tons
Bosnia & Herzegovina          39,356.10 tons                      101,229.71 tons                         106,291.20 tons
Moldova                                   28,284.59 tons                      72,752.14 tons                            76,389.74 tons
Other countries                     217,775.50 tons                     560,150.74 tons                        588,158.28 tons

Wire rods

CN Codes: 7213 10 00, 7213 20 00, 7213 91 10, 7213 91 20, 7213 91 41, 7213 91 49, 7213 91 70, 7213 91 90, 7213 99 10, 7213 99 90, 7227 10 00, 7227 20 00, 7227 90 10, 7227 90 50, 7227 90 95

Country                               2.2.1019 – 30.6.2019              1.7.2019 - 30.6.2020            1.7.2020 - 30.6.2021

Ukraine                                 149,009.10 tons                      383.273,39 tons                        402.437,06 tons
Switzerland                           141.995,22 tons                      365.232,67 tons                        383.494,31 tons
Russia                                    122.883,63 tons                      316.074,84 tons                        331.878,59 tons
Turkey                                    121.331,08 tons                      312.081,44 tons                         327.685,51 tons
Belarus                                     97.436,46 tons                     250.620,96 tons                        263.152,01 tons
Moldova                                   73.031,65 tons                     187.848,18 tons                         197.240,59 tons
Other countries                    122.013,20 tons                     313.835,96 tons                         329.527,76 tons

The European Commission had extended the safeguard duty investigation for a maximum of two months and said that the final decision will be announced on February 1.