Short Range Outlook : September 2015

Long steel demand reasonable in Europe and North America for the season

Trade for long steel products has been slower due to summer breaks in the northern hemisphere, although demand in Europe and North America could be described as reasonable for the season.

Oversupply remains biggest problem

Some oil producer countries are showing the effects of oil price reductions in terms of lower demand and currency devaluations that restrict imports. Oversupply is the biggest problem and is pushing prices of some products to levels irrationally unprofitable.

Chinese suppliers still aggressive, Russian and Brazilian suppliers doing their best

There is strong oversupply of iron ore-based steel products in the market. Aggressive competition from Chinese suppliers continues, but Russian and Brazilian suppliers are doing their best to take business. The market for EAF products is in greater equilibrium. However, as the market expects scrap prices to continue their downward trend, there is little reason for demand for EAF-based products to be more than hand-to-mouth.

China versus the rest of the world

Stable raw materials prices are helping to hold floor prices for finished steel products. However, this stability is set at a point where the price spreads between raw materials and steel products are very low. Competition in the market is still very severe and intense for those who have to produce and sell, mostly due to the strong competition with Chinese material in most regions. Back in the year 2000, the rest of the world’s steel output was 20 times China’s output. Today, Chinese output is equal to that of the rest of the world. Therefore, if we add one unit to Chinese side, we need to deduct the equivalent from the rest of the world to keep things equal. As long as China will continue increasing its presence in the international market, producers in the rest of the world will continue to suffer and trade remedies against China – such as the US is imposing – will be more common all around the world. As a result, business will become more regional.

Drop in oil prices should provide support for demand side

The drop in oil prices should lead to an accelaration of global economic growth as has always happened in the past. Most savings go straight to the pockets of consumers and this extra income is spent rapidly. In the meantime, governments of oil producing countries maintain their spending programs using financial reserves or by borrowing. Demand for steel should naturally benefit from this context, which will help the market overall, even though it may not be enough to solve the existing overcapacity problem.

EU stability and US growth are positive factors

The continuing stable situation in the EU area and the current level of demand in the European domestic market as well in as the US domestic market and the higher growth rate in the US are positive factors. US consumption will likely be boosted by lower energy prices and this will help growth but short-term challenges continue to exist.

Some positive demand signs but also hesitancy in ferrous scrap markets

As for ferrous scrap, the markets can be divided in different sectors. The Asian market is dragging the rest with it. The traditional scrap buyers are able to essentially run on Chinese semi-finished steel rather than operate their melt shops. All containerized scrap markets have seen prices come down to reflect the alternatives. US domestic scrap demand remains fairly strong as US steel producers are capitalizing on the downtrend of scrap prices, which reduces their costs and helps them to stay reasonably competitive.The European scrap market has stayed fairly stable, with prices falling on euro basis but not to the same extent as international US dollar-priced markets have. This is a reflection of the ongoing decent demand in this particular market. Scrap supply is decreasing with the price drops and this may help balance the situation somewhat. Strong currency fluctuations and uncertainties regarding conditions in China have been influencing the general sentiment over past months and have made the markets hesitant. The reelection in Turkey and the weaker Turkish currency have raised concerns regarding inflation and instability, causing postponement of demand from Turkish mills.

Many suppliers and fewer buyers in scrap markets

Scrap suppliers have experienced that demand has lessened and so crowded suppliers are trying to sell to fewer buyers. The more normal pricing differentials between markets has been altered in some areas due to anti-dumping duties on steel as well as decreased bunker fuel rates which shift competitiveness.

Discrepancy between scrap prices in Turkey and Far East

Price of container scrap is around $170-180/mt in the Far East, and there is a big question on how the $235 per ton price level can be maintained in the biggest import market which is Turkey. There has been an almost 10 percent drop to 650,ooo metric tons in Turkish rebar exports, while China has reached almost 2.5 million metric tons per month. Therefore, in the long run Chinese billet purchases may not be so helpful to Turkish mills as they are at present, and ferrous scrap prices may need to move in line with current billet prices. It is probably time for scrap to the break $200/mt level for Turkey.

Approach of year-end to have usual dampening effect on long steel demand

The outlook for the rest of the year is not very positive as seasonal effects are also expected to have their usual negative impact on demand for long steel products towards the end of the year. The highly oversupplied market seems unstable and unpredictable with difficult times ahead for many steel mills. We will probably see new antidumping cases inititated in several different markets. It will also be important to see which of the current antidumping cases will be successful and change the market dynamics.

European scrap demand remains fairly good and likely to improve

As for ferrous scrap, European demand remains fairly good and prices have fallen to a level which will likely raise demand for scrap. Lower supply will also help.




One Response to “Short Range Outlook : September 2015”
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