Short Range Outlook : December 2016

Clear switch to positive sentiment in global long steel products market

Conditions in the global long steel products market have improved significantly and a clear change to positive sentiment has been observed in the industry, something not seen in recent years.

Chinese demand and supply restructuring boost prices and margins

Domestic demand in China, together with a restructuring of supply at all levels from raw materials to finished products, is helping the market to move up in terms of both price and margins. Meanwhile, the supply and demand equation has already been balanced in the rest of the world. Most countries have already closed their doors to outside supply, creating a protected environment. It yet remains to be seen, of course, how healthy protectionism will be for the industry. That said, the international aspect of the steel market has declined significantly, as the focus is more domestic nowadays.

Chinese export growth does not appear to be on the horizon

Chinese origin steel products are staying mostly in Asia. Currently, the largest non-Asian destination for Chinese steel products is Latin America, which is not the strongest market. Therefore, export growth does not seem to be on the horizon for China. As exports from China are no longer significant outside of Asia, there is not much pressure on international prices, giving confidence to the markets.

Very positive price dynamics for flat products also influence pricing of longs

Very positive price dynamics in flat products are also influencing pricing policies for long products. In North America, the EU, Turkey and Asia, we have seen several price increases in the range of $40-60 per metric ton, which is also unusual, on back of cost increases. The whole world has adjusted, though with South America lagging behind.

Latin America remains open to Chinese exports

Some price improvements, mainly driven by costs (coal, iron ore), have been seen in Latin America, but very little or no demand growth has been observed. While protectionism continues to increase and is reshaping the international trade flow, Latin America remains open to Chinese exports and imports into the region have continued to increase.

Higher raw material prices also contribute to better sentiment for longs prices

The rise in raw material prices is also contributing to the positive sentiment in regard to long product prices in the market. Margin management seems to be back in the forefront of steel producers’ thinking, which is a very good development.

Restocking of steel has picked up  

With lower steel exports month on month from China, producers in the rest of the world have seen better demand for their own steel products and higher commodity prices have resulted in added demand for scrap, which likely will continue into the New Year. Restocking of steel is picking up, adding demand to the supply chain. China has imported scrap for the first time in a while in order to make use of its relative advantage over virgin raw materials. Greater activity is observed in derivatives, especially for iron ore, creating some commotion and resulting in increased volatility.

Competition still observed in markets where demand is stronger

There is obviously not much competition in the protected markets, but competition can still be unreasonable in open markets, though not to the extent seen before the improvements recorded in the past couple of months. Nevertheless, we still see competition in markets where demand is stronger than in others. As long as Chinese steel products stay at home, the rest of the world can get along very well despite strong competition. Latin America, of course, remains very much exposed to exports from China.

Outlook very good for next quarter, gloomier for longer term

The global scenario remains gloomy in the medium-to-long term, with too much uncertainty still evident. However, the current status of the market is very stable and is set to continue into the first quarter of 2017. The outlook for the next quarter is very good and satisfactory. Any change in raw material costs should lag one quarter before translating into finished product prices. It looks to be a very happy New Year for steel producers and for consumers that are well stocked at the end of the year.




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