Short Range Outlook : February 2021

Sentiment improves in global longs market, concerns remain for February and March

Despite some very good margins for December, the global long steel products market is facing more concerns for February and March. China did increase its presence in the export markets and did enter at prices comparable to other sources, but ended up lowering its prices quite quickly. In the current global market circumstances, sentiment is better and so a return to the prices of September and October last year hardly seems foreseeable.

Scrap market fluctuations create uncertainty for production costs and margins

The unexpected hype in prices of scrap and subsequently steel since December gave the impression that we may see a super cycle in 2021. After very strong demand at the end of 2020, January saw a more sensitive market. Prices had moved up too rapidly in anticipation of a quick recovery with restocking activities. The sudden heavy drop in the scrap prices made market players nervous. It was thought back in November that domestic scrap prices in China would reach international prices, but instead international prices have reached the levels of Chinese scrap prices seen in November. Cost of production seems to be the last thing on the minds of those who are the market decision-makers on sales prices. Not even the Chinese have this issue figured out as they have a rebounding economy and worse margins now than back in November last year.

US mills benefit from cheaper local scrap and their more rapid local deliveries

The rise of scrap prices to historic highs and their subsequent softening has been the biggest problem in the US market as well. All customers are now naturally on hold and waiting for prices to come down before they place future orders. Ironically, future orders can only arrive in four to five months’ time as most mills are fully committed until April. It is extremely difficult to sell for such future dates when prices are coming down and the bottom is not clear. This only benefits US domestic mills who buy cheaper local scrap and can deliver faster than imports.

Section 232 unlikely to be quickly eliminated, but new US administration is a positive

The hopes that Section 232 would be swiftly eliminated by the Biden administration are rapidly evaporating as it has just proved that it favours this hidden tax ride by reversing the cancellation of the Section 232 duty on aluminium for Dubai. It could have used this opportunity to end all the Section 232 duties. The new administration in the US may stick to Section 232 for a while, but in the medium term things will probably be better with it at the helm. At the very least, they do not talk nonsense and do not tweet nonsense. Moreover, there is still hope that trade barriers will be torn down for good allies and that problems will be discussed on an eye-to-eye level and with common sense.

Vaccinations give hope for return to normality

The progress of vaccinations is certainly a positive for the market, but of course there is still a huge part of the community worldwide waiting their turn, though those in the community who face the highest risks are getting the vaccine. We may hope that by the summer the burden of the pandemic on our lives will be diminishing and we will hopefully start resuming our normal lives.

Mild winter gives Europe a boost, return to normality could provide further support

The very mild winter in Europe gives hope that construction activities will not be interrupted in 2021, while demand is still very good. If people are back to work in a more normal world, consumption will increase greatly and governments will spend the money from the EU’s Covid fund.

2021 likely to be a year of rebound, increases in output may bring risks

2021 looks very likely to be a year of rebound, a year of multilateral boosts to the global resurrection, with less political uncertainty. It is highly likely that demand will be good this year. However, we will not be seeing the same spread during the rest of the year that we are currently observing in this first quarter, since we have been reading that furnaces are being fired up one after the other.

All eyes on China for post-holiday period

Also as regards the prospects for 2021, China will be a significant factor. It has been producing more and may export more, and so future price hikes may be moderate compared to December 2020. To date, what has been offered by Chinese exporters has been somewhat confusing and has made people worried. Nevertheless, we will probably have to wait until China returns from its holiday to see where exactly the market will be heading. We are hoping for the Chinese to come back from their holiday to lower production. Otherwise, the price increase for raw materials will be maintained and the level of competition in the global market will be higher.

Scrap prices likely to stabilize in February, renewed buying anticipated

Scrap prices may have risen too rapidly to levels which they should not have reached, on the back of speculative activity and a correction was certainly expected. That said, the scrap market is still expected to be tight and demand remains elevated with strong steel production and stretched-out order books. Nowadays, scrap prices are descending to levels to which they should not drop because of supply pressure created by some hidden cargoes offered on prompt basis. However, we will likely see a stabilization in February with renewed buying from multiple market areas.

Competition now more regional

Currently, the activity in the global markets is rather slow, except for scrap deals, and competition is not so strong but is increasing slowly. Competition in the longs market nowadays is more regional.

Will EUROFER achieve extension of safeguard measures?

Safeguard measures make imports very difficult in Europe. It still has to be seen whether EUROFER will find another plausible argument to convince the EU to extend the measures beyond June 2021. EUROFER can be very creative when it comes to bending the statistics and facts for the good of its members.

Market generally unstable but outlook seems quite satisfactory

Under such circumstances, the current status of the market can be described as generally unstable with some fluctuations, but the outlook is quite satisfactory even though we will have greater clarity by late February.




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