Short Range Outlook : February 2019

Price levels improve in global long steel products market despite uncertainties

Prices in the global long steel products market are better compared to our last report, though there is a certain degree of uncertainty regarding how sustainable the current price levels are. The situation has gotten worse generally in terms of demand and supply, as there seems to be a general worsening of expectations and the numbers coming in do not bode well.

Brazilian dam accident pushes up iron ore prices

Scrap prices have again started to increase slightly, which means the recent improvement in long product prices has no positive effect. Iron ore prices have risen due to several force majeur declarations following the dam collapse in Brazil.

Turkish mills maintain rebar production at low levels

Turkish mills have reduced their production considerably and at the same time the sudden increase in scrap prices has pushed up their rebar prices. If Turkish rebar production continues to run at low volumes, then it will be difficult for scrap prices to continue at their current levels. If production increases, then we might see another drop in rebar prices.

Margins still better than average in US where there is not much room for imports

Margins have been reduced in the US, but they are still better than average. With lower domestic prices in the US and the 25 percent tariff, there is not much opportunity for import trade.

EU market faces many uncertainties

Many in the EU are very much concerned about a hard Brexit, the ongoing trade wars, the potential impact of the recently introduced safeguard measures, the American market situation, exports from Turkey, the GDP forecast in Germany, the expenditures of the new government in Italy, etc. If Germany is to correct its GDP growth forecast from 1.8 percent down to 1.0 percent, then other EU markets may follow suit. German stocks are also under pressure, which does not encourage a positive outlook for the EU overall.

US and EU markets expected to improve pricewise

Having said all the above, the US and EU markets are expected to improve pricewise. However, we need to wait until the Chinese New Year holiday is over to see where the rest of the world will be heading.

Less pressure from Chinese supply, but what will happen after the holiday?

There is obviously less pressure on the market from Chinese supply offers due to the somewhat higher prices offered and the Chinese New Year holiday. Chinese origin steel prices are very high and not competitive for the time being, giving suppliers of steel from other countries the chance to fill the gap. Chinese exporters usually push up their prices after the New Year holiday, and so we will have to wait and see what move they will make after the holiday.

Temporary end to US government shutdown is welcome, but other issues remain

The US government shutdown is temporarily over, which is good news, but there is still no mention of revoking the 25 percent and 50 percent Section 232 duties which were imposed citing the defense of US national security. Perhaps an agreement may be reached by President Xi and President Trump by March 1, which would obviously be positive news.

Industrial output recovery after year-end provides a boost

Industrial output has recovered after the end-of-year slowdown, and sentiment seems to have improved somewhat, and global growth, although slightly lower, is still pacing at decent numbers. 2018 saw strong production development in most regions, apart from Europe and Turkey.

Scrap prices show clear rebound from bottom levels in early January

Restocking and the industrial ramp-up to normal levels have been strong during January and, with winter drawing down scrap flows in the northern hemisphere, scrap pricing development saw a clear rebound from the bottom during early January.

Competition generally at high levels and heating up further

Competition in the market is high as usual and is even heating up further as we can see. Ukrainian suppliers have been exporting rebars to the Far Eastern market for the first time in a long time, competing with exports from Turkey and Qatar. Elsewhere, competition is slackening in the EU market. EU mills are expected to set their goals in the coming period and will start dictating prices sooner rather than later. With the continuation of trade restrictions, the global trade will see further suboptimal effects.

Current market characterized by instability and uncertainty

The current status of the market can be described as unstable given the uncertainty caused by Brexit, the government shutdown in the US, the situation in Venezuela, the Chinese New Year holiday and the difficult winter conditions in North America and the north of Europe. The scrap market outlook and the future of ex-Brazil iron ore only adds fuel to this uncertainty.

Difficult to make predictions: Implementation of EU measures and post-holiday period in China need to be watched

Under these circumstances, it is pretty difficult to make any predictions for the market. The picture will become a little clearer with the full implementation of the measures in the EU and the end of the Chinese New Year holiday.



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