Short Range Outlook : November 2016

Global long steel products market enjoys its best environment since 2013

The global long steel products market is currently enjoying its best environment since 2013, while sentiment has improved significantly. Supply and demand in the market are now a lot more in equilibrium compared to previous months.

Fewer offers from China and Russia seen in global market

Demand had made a weak start to October, as sellers were continuing with their seasonal fourth quarter destocking. At a certain point, supply in the market was on the short side as Russian and Chinese suppliers increased their offer prices, especially for billets. Russia and China are obviously enjoying better domestic market conditions than before with improved economic indicators and stronger demand. As prices increased first in China and then in Russia, there have been less offers from these countries in the global market lately and as such an improvement has been observed in the global business.

Lower availability of coking coal has been pivotal for scrap pricing and demand

Billet imports from China to Turkey have halted, pushing rebar prices up, with the support of the increase in ferrous scrap prices of course. Trade has bounced back with price hikes of 20 percent in late October for ferrous scrap in light of low availability and increased demand. Scrap has become more sought-after since alternatives are expensive in comparison and less available. The lower availability of coking coal after capacity cuts in China has been pivotal for pricing. It is estimated that availability will remain tight for some quarters and will likely keep demand for scrap at a higher level for an extended period.

Higher costs for BOF-based producers have impacted billet prices

As a result of the raw material price increases, costs of BOF-based production have gone up, with the hikes in costs exceeding the increases seen to date in finished product prices, and this has been impacting billet pricing as well. Higher raw material prices will keep product prices on the high side.

Scepticism on possible price hikes led to low finished product inventories

There were many non-believers in the likelihood of price increases and so finished product inventory levels held by consumers are low. But buyers are now realizing that they may have to hurry to ensure supply amid very low inventories and this has pushed the price increases from scrap to finished products. Some market players in North America were also late in taking stock of the new dynamics in costing, following the new antidumping cases announced.

Influence of Chinese exports on international prices now much diminished

The negative influence of Chinese exports on international market prices has recently been much diminished as a result of trade actions and measures against China. Such trade measures have brought some stability to certain markets, while the prevailing low inventory levels also provide support for the current environment. Trade is becoming more and more regional and therefore major exporters like China and Russia are losing their share and influence in certain markets like the EU and the US. As prices are finally moving up internationally, such increases will be seen in Europe as well.

Strong positive sentiment for coming months, though China needs to be watched

There is strong positive sentiment in the markets as regards the prospects for the coming months. Prices are not expected to fluctuate as much, as long as prices from China stay at the same level as international prices. Demand has increased in the Chinese domestic market, thereby lowering the amount of export availability. This fuels demand and pricing for the supply chain. In such circumstances, suppliers are not prepared to sell at certain levels and prices will continue to move up consistently. However, we should still be cautious as we never know how sustainable the improvements in China are and how long they will last. Besides, we understand that the price increases have been driven much more by raw material costs than by a general improvement in demand.

Rebalancing of trade to normal routes

Competition is still strong in the market but within more reasonable economic terms. Trade has been refocusing on nearby and home markets, lowering global competition. Trade is being rebalanced to normal routes.

Competition easier in some regions due to protection against aggressive exporters

Competition is easier in some regions that are protected against aggressive exporters. Although in general rebar prices are moving up, in some traditional export markets like the UAE rebar prices are still way below the current international market levels.

Satisfactory outlook for next quarter but challenges remain for BOF-based producers

The current status of the market is stable and the outlook for the next quarter is satisfactory although it remains challenging for the BOF-based producers which depend on coking coal imports.




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