Short Range Outlook : November 2019

Confusing environment prevails in global long steel products market

The current environment in the global long steel products market is confusing. The raw material for blast furnaces is becoming cheaper, while ferrous scrap is getting more expensive and we observe increasing prices for both reinforcing bars and hot rolled coils. Customers are making inquiries for longer than they normally should, and mills are incurring greater losses than they can afford and so they are halting production and have stopped offering. However, the current price increase should not hold long because the real problem is demand.

Scrap prices start to move up from bottom levels

There is enough scrap availability and indeed prices in the US domestic market are up by US$20 per gross ton. It looks like ferrous scrap prices internationally have hit the bottom and started to move up again. In general, the supply chain has been very low on scrap inventory, which has meant that restocking has pushed international prices higher.

China drives international prices of many products

China is driving the international prices of basic pig iron, hot briquetted iron (HBI), HRC and billet/slab, thereby realigning flows and supply-demand.

Worrying contraction in Brazil

Steel production in Brazil contracted by 7.3 percent in the first nine months this year, according to the Brazilian Steel Institute (IABr) and Brazilian exports were down 3.0 percent from the same period last year. Market expectations for internal GDP growth in Brazil are for only 0.91 percent in the current year and 2.0 percent in 2020. The situation for Brazilian semi-finished exports is difficult because billet has dropped to its lowest price of the last three years. The US market used to have better prices for slab exporters, but in recent weeks the price has dropped dramatically.

Rise in German industrial activity raises hopes in Europe, but too many uncertainties remain

The situation in Europe is unchanged. Industrial activity bottomed out and then increased in the German market, bringing with it the surrounding areas in Europe. However, there are still too many uncertainties and, with winter approaching, the situation regarding what may happen in the first quarter next year remains unclear. Political tensions and lack of clarity surrounding Brexit continue to be observed and therefore sentiment remains uncertain.

Buying activity in China provides a boost

Chinese buying activity has strengthened the sector as we are heading into the winter period when emissions regulations will be stricter. Internal steel consumption in China is still very high and the country is not increasing its exports. The situation in China looks good at least until the Chinese New Year holidays.

Low interest rates may be supporting factor, only obstacle is low growth expectations

Low interest rates and liquidity may also be supporting factors in the long run. The only obstacle is low growth expectations.

Longs prices should follow scrap prices, EU mills expected to raise prices shortly

Long product prices should move in line with scrap prices which have begun to bottom up. The lack of competitive import options should help EU mills to raise prices shortly. Demand in some EU countries remains strong but has been weakening in others.

Levels of competition in global market remain high

The levels of competition in the global market are still high because of the lack of demand in main markets like Europe and the US. Also, trade tensions and commercial barriers are increasing around the world, reducing options for exporters. Overcapacities are preventing prices from bouncing back. Indian, Turkish, Russian, Brazilian and Southeast Asian suppliers are competing for every dollar in China. Agreements in China-US trade talks could bring a little breather.

Regionalization of trade continues, nervous supply chain reacts with sharper price spikes

Freights are being impacted by the IMO 2020 regulation, meaning long-distance shipments will be more expensive. Accordingly, regionalization of trade continues. Lead times are very short and no one wants to hold unnecessary inventory. The nervous supply chain therefore reacts with sharper price spikes.

Market outlook is challenging

The ferrous scrap market has seen a fairly decent rebound and solid demand with balanced availability. The markets have been stable for the last week or ten days. But the future is uncertain as the outlook is not good because of the lack of demand and of price levels. The market outlook can be described as challenging.




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