Short Range Outlook : December 2015

Sentiment generally negative in global long steel products market

Sentiment in the global long steel products market is generally negative due to the expected seasonal slowdown at the end of the year. Most markets are approaching holidays periods and, as buyers in many areas decided on their last purchases of the year in the previous weeks, activity has slackened lately.

EU and North American mills have been able to get their orders

Long product mills in EU and North America have generally been able to get orders for what they want to produce at lower levels of capacity utilization, longer year end stoppages included. Still, US domestic mills have taken precautions with serious discounts to stop future import orders for the first quarter and have become successful. The EU has some advantages due to the lower value of the euro, which with present prices should keep out imports of steel to a certain extent and provide some room for domestic suppliers.

Some record rebar sales in UAE in November

Demand for reinforcing bars in the UAE market has picked up with some record sales during the month of November. Local producer Emirates Steel Industries felt comfortable enough to raise its prices by $8/mt for December.

Deteriorating scenario in Brazil, downward price trend in Asia

Political and economic scenarios have deteriorated further in Brazil and third quarter GDP growth has been announced recently at minus 1.7 percent. Elsewhere, the Asian market has continued its downward trend in pricing.

Production declines worldwide amid supply pressure from record export volumes

Production all around the world is declining mainly due to supply pressure as a result of record-high volumes of exports mainly from China, and pressure from exports may accelerate in the coming months if the supply situation  is maintained. Under such circumstances, the market will surely force some companies to suspend their operations, among which those who are not sufficiently strong financially will be pushed out of business.

Long-standing trade flows disrupted by new trade measures

New trade measures have been filed against imports, thereby disrupting long-standing trade flows and limiting producers’ options in finding markets for their products.

Negative investment environment amid instability in many regions and pessimism in EU

The ongoing political instability in many regions of the world and the negative mood in Europe which has worsened as a result of the refugee crisis and the recent terror attacks do not help to improve the environment for investment. Funds which were supposed to be used for the renewal of infrastructure in Germany will now be spent in aiding one million refugees.

Ongoing soft trend of iron ore prices to benefit BOF-based mills in EU

On the raw materials’ side, the price of iron ore fines with 62 percent Fe content is getting closer to dropping below the level of $40/mt CFR main Chinese ports. Futures pricing could end up dropping for 2016 into sub-$35 levels with liquidity going somewhere else.  The BOF-based mills in the EU will gain an advantage with lower iron ore pricing for the first quarter, which might put some further pressure on ferrous scrap prices in the market.

Short-lived recovery for scrap in Turkey: concerns due to tensions with Russia

On the scrap side, the month of November started with a recovery for scrap after the second general election held this year in Turkey. The election outcome of a majority government meant that infrastructural and building projects could restart and go ahead. Domestic steel mills therefore decided to restock, which added steam to an otherwise dull market and demand needs for the rest of the year were covered in the space of a fortnight. With the rise in geopolitical tensions in the region between Russia and Turkey, the market ended November with some worries over the supply chain going forward. Market pricing drifted sideways toward the end of the month, with European pricing fairly stable due to low scrap availability and the weaker euro serving as protection.

Impact of AD action in UK against Chinese rebar imports awaited

The antidumping action against reinforcing bar imports from China to the UK market can be seen in January.  It remains to be known whether this will affect the entire European market or whether its impact will be limited to just the UK and Ireland. It may push up price levels in the medium term as other import sources will not be able to match the price of Chinese-origin material.

Some production cuts in EU, Turkey and Asia – so are we at the bottom of the cycle?

Some production reductions are observed in the EU, Turkey and Asia and some closures are happening in China. There are reports in the market about further potential mill closures in the coming month in the UK. This may indicate that we are at the bottom of the cycle.

Some moves finally being made to reduce overcapacity in steel

Signs that some moves are being made to reduce the overcapacity in the steelmaking world are the only real positive in the markets despite the fact that this is still a very slow process. The China Iron and Steel Association indicated this month that their projection for 2016 will be an excess output cut of around 9 million mt compared to 2015. The CISA has estimated steel production of 806 million mt and domestic consumption of 668 million mt for 2015 and production of 783 million mt and consumption of 654 million mt for 2016.

Freight rates continue to fall 

Freight rates continue to drop. The Baltic Dry Index hit an all-time low in November off the back of a slower world growth projection and excess tonnages available, along with low oil prices.

Intense competition mainly with China in many regions

There is intense competition in the market mostly with Chinese material in many regions, which is described as unfair by many producers. It appears that Turkish long product exporters have given price more importance than tonnages as of late. Under such circumstances, the market can be described as unstable as there is not enough demand and too much supply, coupled with political uncertainties and currency changes.

Market outlook still challenging: players will have to react swiftly to any rapid changes

Needless to say, the outlook of the market is challenging. The impact of lower energy and iron ore costs on the market are yet to be seen. Things may change rapidly and market players will have to react swiftly. On the scrap side, the demand prospects in Europe for the first quarter of the New Year seem fairly good.



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