Short Range Outlook : June 2017

Exporting countries under pressure amid protectionism and increased capacities in traditional import markets

The supply-demand balance in the global long steel products market has been worsening over the last few weeks. Protective actions such as antidumping and countervailing duty (CVD) cases and import taxes, coupled with increasing capacities in some traditional import markets, have put export-dependent countries in a difficult situation.

Protective actions raise levels of uncertainty in US market

The market situation has definitely become worse in the US. There was an unexpected countervailing duty announcement on reinforcing bar imports. On top of that, there is now the unknown threat from the Section 232 investigation hanging over market players’ heads as regards the making of any import decisions. Section 232 obviously delayed the final decisions in the antidumping and countervailing duty cases. Nevertheless, demand seems to be flat in the US.

Section 232 may be another shock wave for US market

Market players expect measures to be passed under Section 232 and that this will constitute another shock wave like the exit from the Paris environmental agreement. This possesses the potential to turn things quickly upside down and make the market unpredictable for everyone. Turkey, of course, will be in a very difficult situation, losing one of its biggest markets after it has already lost market shares in the Middle East.

Weak prospects for upward price movement in EU long steel products market

Demand is not great in some southern and eastern EU countries. As Algeria is dormant on imports with no import licenses released yet and with Algerian domestic producers trying to protect their own turf and meet all domestic requirements themselves, it seems that long product prices in the EU do not have any chance of moving up with the exception of being cost-driven on the back of scrap prices. The future may bring along tougher conditions for the European market depending on the outcome of the antidumping and countervailing investigation on wire rod imports to the US and on the US DOC’s Section 232 investigation.

Still too much existing capacity in China

On the other hand, the volatility in China is not even as attractive as it used to be. There is still too much existing capacity, and, if demand for long products in China slows down even only a little bit, it would provide so much extra capacity to the world markets that the previous imbalance will instantly be restored.

Demand poor but stable in Latin America

Elsewhere, demand is very poor but stable in Latin America. There is no sign of a change in this region in the short or medium term. Excess capacity remains an issue and continues to put pressure on local price dynamics. Political uncertainties in Brazil have delayed any recovery of the local market. Unfortunately, it looks like 2017 will be another lost year for the Brazilian market.

Domestic prices allow little room for imports in GCC and Southeast Asia

In the GCC and Southeast Asian markets, market prices do not allow imports to play any significant role.

New crisis in GCC region will probably be resolved quickly

The new political crisis in the GCC region has added to the uncertainty in the global market. It can be expected that reinforcing bar exports from Qatar to Saudi Arabia will stop as well as shipments of billets from Qatar to the UAE for re-rolling into wire rods as the shipments pass through Saudi Arabia. Having said that, the crisis will probably be resolved quickly as it is bad for the region as a whole.

Scrap prices remain stable with support from demand side

On the raw materials side, prices of iron ore and coking coal are both down, whereas ferrous scrap prices are relatively stable. Market participants think that ferrous scrap prices should decrease, but this is not happening. Ferrous scrap demand in Europe and the US remained solid during the spring and this is also expected to be the case in the coming month as demand from steel mills is strong. Turkish steel mills are enjoying a stronger domestic market after the April referendum and so they have raised their steel outputs, which means their demand for scrap is greater.

How long will China continue to export scrap?

One issue causing uncertainty in the scrap sector is the question of how much and how long Chinese scrap will be exported to surrounding regions instead of being consumed in the Chinese domestic market. China continues to export scrap, albeit in relatively small tonnages.

Global long steel market generally boosted by improved demand

Apart from all the above, the long steel markets have shown improved demand and reasonable supply levels, although some points of distress have been observed in Mediterranean countries which depend on exports, due to import restrictions at destinations.

Improved demand in Russia has also been a factor, contributing to the general improvement of sentiment. Stocks are, in general, low in the supply chain and buying activity has shown a good consistency.

Better demand also seen in Turkey and some EU countries

Demand has been increasing in the Turkish domestic market after the referendum in April. There are also signs of improvement in some European countries. Some EU countries have been seeing very good demand, which is expected to be stable for the coming years due to infrastructure investments.

Positive margins for producers amid good demand and reasonable prices

Demand is still good and prices are reasonable on both ends, resulting in positive margins for steel producers, so that after two to three years steel mills can start publishing the positive earnings which are essential for the future of the industry.

EU and US mills operating at decent to strong capacity usage rates

International prices seem to have found a floor, which brings more stability. European and US steel mills are running at decent to strong production figures. The US mills are now operating at around 75 percent capacity utilization.

Chinese influence on export markets remains limited

The Chinese influence in the export markets has also decreased as they are not putting pressure on the international reinforcing bar markets, which is always good for the supply-demand balance in the global long products market.

Turkish mills’ domestic focus removes some competitive pressure from export markets

Competition is still high in the international market, but the fact that Turkish mills are now focused mainly on their domestic market has taken some of the competitive pressure out of the overseas markets.

Turkish discusses lowering of rebar import tariffs

Interestingly, contrary to the rest of the world where protectionism is becoming ever more widespread, Turkey has been discussing the lowering of tariffs on imports of reinforcing bars.

Despite uncertainties, general stability prevails in global market

Despite all the uncertainties, the current status of the market can be described as generally stable although there are some fluctuations here and there.

Outlook remains positive but many unknown factors make predictions difficult

The outlook for the next quarter seems to be positive, balanced and satisfactory, but at the same time there are so many unknown factors, which makes it hard to forecast the future. The market is more difficult to judge now than at any other time this year. Factors like the Section 232 case and the lack of licences in Algeria are contributing to placing even more pressure on the market.



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