Short Range Outlook : January 2020

Global longs market appears in better shape, with sentiment also improving

The global long steel products market is surely in a better shape today although we have yet to emerge from a slow-activity period due to the holidays in Europe and around the globe. However, real sentiment in the market is pretty positive, especially after the announcement that a trade deal between the US and China will be signed. That said, we have to keep in mind the possibility that any trade deal may prove to be elusive.

Post-holiday developments still awaited in North American markets

The North American markets have been in holiday mode since mid-December and so it is hard to predict the market, but prices were stable at best with higher domestic production and reduced demand at the year-end. Price increases are not expected and, accordingly, the recently increased scrap prices seem to be firming internationally and increasing in the North American domestic markets.

General expectation is for a correction in scrap prices

Indeed, the general expectation for scrap prices is that they will show some correction since reinforcing bar prices became stuck at the $450/mt level and there is no sign in the market that prices will get any better. Mills’ order books in Turkey are less than four weeks, which explains the reason why long product sales prices are not able to cope with the latest increase in scrap prices.

Turkey forced to shift scrap focus to EU and US, demand in Q1 likely to be solid

Supply of scrap from the Black Sea region has dried up as a result of Russia’s export quotas on the raw material. For Turkey, this has meant that supply has to come from Europe and the US to a larger extent than previously. Consequently, the shortage of ferrous scrap in some areas has pushed scrap prices back up in the import market in Turkey. The first quarter of 2020 will likely see solid demand for the raw material.

Output cuts in Europe and US help to stabilize prices

Production seems to have bottomed out in the second half of 2019, with producers in markets in the Western countries, particularly in Europe and even in the US, idling blast furnaces and already taking necessary measures to establish a balance between supply and demand, which has helped to stabilize prices. Thus, a downturn in the short run is not expected unless something unexpected happens on the demand side. However, under such circumstances, one should not expect healthy margins. Of course, the recent increase in iron ore prices driven by Chinese demand must also be noted.

Developments in China remain positive for global steel industry

China continues to stimulate its economy, which provides a boost to the steel industry. Steel exports from China continue to decline and the country has the ambition to use its domestic scrap supply for its own production. The positive news from China will continue to support steel prices, while expectations of a strong Chinese currency will definitely have a positive impact on commodity prices.

Positive developments for markets also seen in Europe

PMI figures in Europe have rebounded with manufacturing looking to recoup some of the losses incurred during the fall of 2019. Another positive development for the market is that the UK has finally ended the confusion about who is in charge of the country and how it will proceed in the coming period.

New IMO regulation may contribute to further regionalization of trade

The IMO 2020 regulation on sulphur emissions in global shipping will mean that longer-distance transportation takes a hit compared with shorter distances and this may lead to a further regionalization of trade.

Situation in Iran needs to be watched

Iran is obviously a major exporter of metal products and steel at competitive prices and, given recent developments, we may be set for some surprises in the market. The oil price is already up as a consequence of the developments in question.

General market outlook is satisfactory despite varying stability in regions

Previous fears of a possible recession seem to have been overblown. Competition in the global long products market is still high and may become even tougher. Due to regionalization of trade and protectionism, the current status of the market in certain regions can be described as stable but unstable in others. However, in general the outlook is satisfactory.



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