Short Range Outlook : January 2019

Is globalization of the world’s long steel products market now at an end?

The global long steel products market is heading towards a more complicated and difficult period as the globalization of the steel business is being rewound amid a clash between liberal and protectionist trade policies that are somehow tied to political ups and downs between world leaders. It seems that global business will be relatively quiet as long as protective measures are in place.

China still not expected to repeat the mistakes of 2014 and 2015

World steel production increased by about six percent during the first 10 months of last year, according to worldsteel, with China indicating an increase of over ten percent. Obviously such a situation creates some worries, but China is still not expected to repeat the same mistakes as it did back in 2014 and 2015.

Turkey to be hit hard by EU import quotas

The EU has proposed and is expected to vote on January 16 on product and country specific import quotas for several steel products including but not limited to reinforcing bars and wire rods. While the major portion of the quotas are given to Turkey, it will be very difficult for both European importers and Turkish exporters to manage such relatively small quantities when compared to the actual current total of Turkish reinforcing bar and wire rod exports to the EU. Most probably, the quotas in question will be filled immediately, and so EU producers will have a relatively good year. However, buyers in some European countries which are not self-sufficient will end up paying higher prices as a result of such safeguard measures.

Coming months expected to be very challenging for Turkish exporters

Furthermore, Turkish mills are in a difficult situation as their traditional export destinations are closing one after the other. At this point, price is not the issue anymore as there are not many markets left to which they can sell. As a result, the coming months will be very challenging for Turkish exporters.

Traditional trade flows have been unnecessarily diverted or stopped, impacting end-users

Overall, the long products market seems to have a good balance of supply and demand as Turkish tonnages are absent. However, the traditional trade flows have been unnecessarily diverted or stopped and this will have a substantial impact on the downstream industry and end-users.

Supply in the US now practically limited to domestic production

Demand seems to be slowing down in the US, due to the shutdown in government spending, slowing housing starts, and with the weather as possibly the most important factor. Supply in the US is practically limited to domestic production, while prices do not justify the Section 232 duty. Despite the general 25 percent tariffs on imports into the US, US consumers are still importing and paying. The international markets, besides the EU and North America, have gotten worse. HRC prices in the US have now reached the same levels as in the pre-tariff period.

Raw material prices soften under impact of low demand

Raw material prices, especially prices of ferrous scrap, seem to be going down in line with the low level of demand. On the other hand, consumption of steel ranges from stable to up a little.

Lower oil prices provide some relief for international business

Despite the ongoing complications and trade restrictions, business still goes on. International business has just got a break due to lower oil prices, which mean lower bunker prices and most likely a weaker freight market as there is less chasing of tons. However, if negotiations with China and the EU do not give positive results, the markets may become even more depressed.

Competition becomes difficult in unpredictable market

The market is fluctuating and is quite unstable and unpredictable at the moment. Under these circumstances, competition in the international arena is becoming difficult. That said, not many players are worried about the strong competition as the focus is on the next business.

Next quarter outlook very good for EU and US, but quite unstable for international business

The outlook for the next quarter is very good for the EU and the US, but is quite unstable for international business. Turkey is, of course, in a tough situation given the existing trade measures implemented by the US and the EU, whereas the rest of the world should enjoy a good year in long products as China is expected to control output and exports to a certain degree. On the other hand, new capacities are coming into Vietnam and Malaysia, which may create some weakness in Asia.

Politics and trade do not mix well

We all agree not to tolerate unfair trade practices in order to avoid injury to the steel business. However, if such an issue is resolved via politics instead of through WTO rules and regulations, the whole industry will suffer in the end. There are some producers applying for safeguard measures, complaining that their markets are under attack from cheap imports, even in the case of some markets which are already heavily protected by existing regulations, as the producers are seeking to put pressure on politicians and government authorities. The next year is likely to be full of surprises and irrational decisions made by politicians and organizations. If politicians actively interfere in trade and industry, it will make the outlook worse.



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