Short Range Outlook : June 2018

Global long steel market to see some stability in short term after Section 232 decision

The global long steel products market is expected to see some stability in the short term after the US imposed tariffs on steel imports from June 1 on the European Union, Canada and México, which were all exempted from the tariffs during May. The Section 232 measures are now the same for the EU, Turkey, Canada and México, but the uncertainty in the market has not completely disappeared.

US likely to import more steel in 2018 than in 2017

It is highly likely that overall there will be more steel imports arriving into the US in 2018 than in 2017. So far, US steel consumers tend to pay the higher steel prices, 25 percent more since June 1. Canadian, EU and and Mexican exporters have already informed their customers in the US that they will have no choice but to add the 25 percent to the FOB value, and no order cancellations have so far been heard. Steel consumers in the US pay more and become even more uncompetitive with their  finished/assembled products. Obviously, NAFTA inefficiencies are automatically going to occur as the free trade in the NAFTA area had created efficient use of capacity. The new situation will cause rises in prices and as well as resulting in some shortages and late deliveries.

Nearly everyone ends up losing due to US measures, including US consumers

The only winners out of the Section 232 decision are shareholders of US steel and aluminum assets in the short term and the losers are everyone else including US consumers who will pay for all of it. The American tax payers and consumers will be carrying the bill. Canada, México and the EU have all notified the WTO of their opposition to the trade tariffs. Mexico has already imposed tit-for-tat countermeasures, as will the EU and Canada later in June.

US mills expected to raise prices in coming period

Demand in the US is the same as in past months, but supply is somewhat limited especially for certain sizes in some areas. Domestic prices offered to most large purchasing customers are lower than import prices due to imports from the EU and México being subject to the 25 percent tariff. The short window of opportunity to import from the EU has already been closed. Now that there is a level playing field for all imports, US domestic mills are expected to adjust their prices so that they are in line with or are a bit higher than import prices. Until then, uncertainty still exists and is holding buyers back from making long-term decisions.

Relief for Turkish mills as they now share level playing field with EU, México and Canada

Of course, the US decision is a relief for Turkish mills who were not exempt from the tariffs during May. With Europe, México and Canada all being on the same level playing field, this will strengthen the competiveness of Turkish mills and bring them back to the US import market, which in turn will also bring the Turkish mills back to the scrap market. As already mentioned, it is highly likely that we will see a further increase in US domestic reinforcing bar sales prices in the next few weeks, which may put pressure on international scrap prices and subsequently on the production costs of the Turkish and European mills. This situation may also lead to a rebound in apparent demand for steel products, linked to the possibility of further price increases, as happened when the sudden increase in graphite electrode prices pushed up production costs and prices last year.

Customers taking time to decide on purchases as everything seems possible with Trump

There are strange rumors in the market suggesting that Canada could have a reduction in the tariff. Since everything seems to be possible with the Trump Administration, customers are taking their time to decide where to buy.

Bottom may have been reached in terms of prices amid slowdown of oversupply

Whether the market overcomes the 25 percent tariff issue is uncertain. We could end up with higher prices and lower output, or more output and lower prices. Recently, oversupply in the global market has been slowing down and it is highly likely that we may have reached the bottom in terms of prices.

EU safeguard investigation adds to uncertainty

On the other hand, there is apparent confusion in the EU as regards safeguard measures. The EU needs to import as well, and the EU authorities are well aware that their action may trigger a domino effect as has already been seen in Turkey, which in fact also needs to import steel products.

In spite of everything, outlook for next quarter appears satisfactory

Competition in the global long steel market has lately been moderate and reasonable. The market is deemed to be mostly stable even though there are some fluctuations in certain areas as well as uncertainty as the effects of the Section 232 measures are difficult to foresee. Having said all that, the outlook for the next quarter is satisfactory.



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