Short Range Outlook : January 2015

Lull in markets due to holiday period

The global long steel products market has been quiet recently mostly because of the holidays in many countries, with business volumes shrinking to low levels. The market situation has deteriorated with strong and agressive offers in terms of volumes and prices, with demand stagnating. Many consumers of deformed reinforcing bars are squeezed by low prices and strong pressure from the construction side.

What will be the effect of the weaker euro and cheaper oil?

In the meantime, certain economic factors have emerged such as the weakening of the euro and the rapid and significant changes in oil prices. Such changes have improved the economic outlook of oil importing countries, while pointing to a possible slowdown in the economies of some oil exporting countries. However, cheaper energy prices are not expected to have a positive impact on the demand side of the global steel industry. Steel demand may be at risk, expecially demand directed to projects like windmill farms, offshore steel platforms, foundations for pipe lines as well as several investments in countries that have had a surplus of funds because of high energy prices. Signs of reduced demand in such businesses have already started to be observed.

Iron ore and ferrous scrap prices have also gone up, which is an even more bullish indication in the context of the stronger US dollar. On the other hand, the weakening of the euro has reduced the chances of imports into the euro zone.

Energy costs have come down considerably as oil prices have deteriorated and this will also be helpful for the steel industry throughout the supply chain and in production. As the US dollar has been gaining strength, it will be very hard for scrap prices to further increase or maintain their current levels. This may also help limit costs of production and the same can be said for iron ore costs. However, as prices of iron ore, coal and gas decline with only minor adjustments seen in scrap prices, the imbalances in costs of production may at some time reach a breaking point.

Stability on scrap side with tight availability

December remained fairly stable on the ferrous scrap side, with availability continuing to be tight into the New Year. Scrap inventories at mills were low and the volume of bookings was larger than in the previous month as mills wanted to be sure of having enough material for the winter months ahead.

Full impact of Chinese export rebate cancellation remains to be seen

The recently announced removal of the tax rebate on exports of boron-aded steel products in China may have a positive effect on the global market. Some offers for Chinese origin material were withdrawn from the market immediately after the announcement. However, a longer-term positive impact needs to be confirmed in the coming weeks.  

Favorable developments in US and Europe

Steel-using sectors are expected to maintain strong activity levels in North America, while activity levels will perhaps be better than forecast in the EU, thanks to lower oil prices and the weaker euro. The EU is well positioned compared to other markets that will be impacted to a higher degree by the the change in  energy price and availability. European domestic demand will likely be supported by the weaker euro against the US dollar and this will help keep production levels stable in Europe. Iron ore prices have seen larger changes compared to the changes in the US dollar-euro exchange rate and so there is now a good chance major European steel producers may make price increase announcements. Imports into the EU market are generally not a factor from any source except perhaps from Russia due to the weaker ruble. EU steel prices were already very stable in 2014 compared to other markets. Increases in flat steel product prices usually do not lead to higher scrap prices in the EU, and so there could be a real difference between long and flat steel product prices once again in the EU market.

Taking into account that the US and the EU together account for almost 50 percent of the world economy, the positive situation in the two regions definitely appears to be good news for the global long steel industry. However, prices will need to adjust themselves in line with recent raw material price increases.

Competition remains very strong

Competition in the marketplace is still very strong, particularly with the very aggressive pricing by suppliers of Russian, Ukrainian, and Chinese origin material. The shift in origins of exports along with the fluctuations in currencies are increasing the risks involved in trading. Competition is expected to become fiercer with the softening of prices. Chinese exports will continue in the first quarter but at lower prices compared to the fourth quarter. The scrap availability in Europe and the US will remain fairly tight in the coming month.

Positive factors for the market outlook

There are some positive factors for the outlook of the market in the months ahead. Nevertheless, the market is rather unpredictable as the outcome of the recent cancellation by the Chinese government of the tax rebate on exports of boron-added steel products remains to be seen.

A split will be seen between industrial sectors, some good like automotive and some bad like the energy sector. We may see different trends in the global long steel market depending on the region. The impact of the slump in oil prices on steel demand in the Middle East and the US will play an important role in deciding the outlook for the global market. Some structural changes may also be seen in the horizon.



3 Responses to “Short Range Outlook : January 2015”
  1. Bhaskar Dutta says:

    Supply is far higher than demand especially in longs and everyone is trying to take a share of the market, leading to tough price war. The largest producer and Exporter China is not showing any signs of improvement in consumption and Turkey also needs to export. They are thus creating the price war and at least no improvement in demand is seen. We are surely going to see further fall in price in H1, the first time after 2009.

  2. Emre Sen says:

    Despite of Irepas mentioned the Chinese Government Tax Rebate cancellation as a positive factor; in my opinion it will not affect the general Steel Market. Chinese Producers already started to sell with Cr added Reinforcing Bars to get the tax rebate.
    Chinese Producers and Russian Producers will be the determining factor of prices in the Steel Market.

  3. ugur dalbeler says:

    price of scrap for EU and Med especially for Turkey is much higher than what it should be compared to other parts oif the expectation is still the same which is somewhere close to $270 cfr fo Turkey level by tyhe end of 1st quarter.

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