Short Range Outlook : July 2020

Global longs demand not as bad as reported, some mills more fortunate than others

The situation in the global long steel products market has not changed much since last month. There has been a reduction in both supply and demand around the world, except in China where output keeps growing. Demand in the global long steel products market is indeed not as bad as the newspapers and media outlets report. However, the mills operating at more than 60 percent capacity utilization rate are blessed. Of course, those operating under 50 percent are in trouble.

Longs so far have not been hit as hard by Covid-19 as flats

Covid-19 has certainly worsened the market situation. Backlogs of building applications and delays in investments will reduce demand for all steel products. But, so far long products have not been hit as hard as compared to flat products.

Stimulus activities and reopenings gradually boosting demand

The pandemic has moved in a wave from Asia to America through Europe and the Middle East. In the Asian markets, demand has been strong during the past month, with industrial earnings strong in June in China. As the rest of the world is now gradually opening up following lockdowns, stimulus activities are buoying up the markets. Manufacturing and construction activities that had previously been completely halted in many places are gradually and simultaneously boosting demand.

Some EU countries hit harder than others, private investments could be put on hold

Some countries in the EU were hit hard by Covid-19, like Italy, France and Spain. Others have been operating almost as though there was no pandemic, like Germany. Nevertheless, the mood in the EU is far more negative compared to pre-pandemic times and unemployment will increase. The risks are not only observed in the public sector in general. A lot of private investments may be put on hold in the event of worsening sentiment. On the other hand, the public sector may use construction to stimulate the economy and inject money into it.

Brazilian steel output rises in May from April, still down 22.6% year on year

In Brazil, according to the Brazilian Steel Association (IABr), both production and demand were growing in May, but from a very low base in April. Production in May was down 22.6 percent year on year and capacity utilization was only 51 percent. In the first five months this year, production was down by 16 percent year on year and the IABr is forecasting a drop of 27 percent for the full year.

Scrap buying in June exceeds normal levels amid replenishing of stocks

Reopening means utilization rates have been picking up from bottom levels. Scrap inventories were depleted in May as industry closures meant low scrap availability. June buying surpassed the levels for a normal month as scrap needed to be restocked.

Positive developments in China, no threat from cheap Chinese exports

When China reopened after its lockdown, the backlog of demand was so high that they returned within a very short period of time to almost the pre-Covid-19 volumes. On top of that, they took advantage of low prices of semi-finished steel such as billets and slabs and also of HRC to conclude purchases from the global market. Production in China is running smoothly and demand is good and will certainly remain strong up to the end of the year. Strong Chinese domestic demand keeps Chinese steel from depressing export destinations. Accordingly, there is no threat to the world that “cheap steel from China will flood the market”; rather it looks more like “cheap steel from Europe” is searching for destinations.  

China’s share of world steel output approaches 65 percent

China used to produce 50 percent of the world’s steel, concrete, aluminum, etc. Nowadays that number is approaching 65 percent because of the downturn in the rest of the world and the increased production in China.

Demand from China helps global rebuilding, greater competition seen at low prices

Demand from China has even helped the rest of the global industry in its rebuilding process. However, there is generally more competition in the global market at the lowest price.

Politics in certain countries add to market instability

The market is unstable and fluctuating under current circumstances. Politics in the US, Brazil, Turkey, China and elsewhere are also adding to the unstability.

Next quarter outlook very good for raw materials, uncertain for longs

The outlook for the next quarter is very good from the raw materials point of view as the markets are rebuilding and stimuli are adding a push. However, it is difficult to make a prediction for the long products side. It could be the worst quarter of 2020.




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