Short Range Outlook : March 2022

Global longs market at unprecedented juncture after Russia’s invasion of Ukraine

The global long steel products market has entered a new and completely unprecedented situation as a result of the war in Ukraine. The current situation means one of the largest suppliers of many raw and semi-processed materials will be completely excluded from the market for an unforeseeable period of time, with the consequences being almost impossible to predict at the moment.

Supplies of raw materials and semis from northern Black Sea at standstill

There will certainly be difficulties which, in fact, have started already, with the supplies of raw material and semis from the northern shores of the Black Sea. The situation will definitely push prices up due to the reduction in shipments in general out of Russia and Ukraine, and the depth of the impact will be shaped by the extent of the measures against Russia and the duration of the conflict. We may see further shortages in energy supplies, which will increase costs further. The price increases for all steel products and the supply shortages will be greater and more serious than many people expected. There will be a long-term disruption of trade and shipments.

Will the steel industry have enough raw materials for April? No firm prices for anything

The steel industry does not know if it has enough raw materials to operate in April, nor does it know what the price will be for those raw materials that are available for purchase.  The steel industry is not quoting firm prices for anything, and any price mentioned would have been inconceivable before the last week of February. A significant part of commercial billet and slab has suddenly been put out of the global business. The CIS is a major part of this trade along with pig iron and iron ore pellets. We are currently going through a massive remapping of logic. Materials need to be covered from other sources in an already limited market. Conditions are extremely tight, which also shows in short-term pricing spikes.

Russian exporters hit by sanctions

Russian exporters have hit a brick wall in the Black Sea. There will be enormous problems with shipments whether westwards or southwards, as well as financial and logistical difficulties. Companies from the countries that have joined the sanctions will be making sure that their supply chains are not using material from the sanctioned countries. Ships that load cargoes at Russian ports will be subject to sanctions themselves: they may lose insurance and their cargoes will not be insured. Many customers will not take the risk of buying products of Russian origin.

Far East ports and China to remain best option for Russia’s exports

On the other hand, Russian mills are expected to maintain production but flows of steel will be from their Far East ports and by rail delivery to China.  Russian mills have the absolute lowest cost of production and by far the lowest marginal cost of producing one ton of steel. So, if they can ship and get paid, they will flood the Asian markets including the Indian subcontinent with increased quantities. This will affect the flows of everyone else in Asia and may not be welcome by the Chinese steel industry. China is the most stable steel market in the world today and it does not want instability.

China set to become dominant billet supplier to North Africa

China will probably become the dominant supplier of billets to North African markets, in competition with Turkish suppliers. The overall situation is bleak. The world is now very short of BF and DR pellets. The shortages of pig iron and HBI already existed.  For many users of such raw materials, Ukraine and Russia were the No. 1 or No. 2 supplier.

Scrap market in chaos, exporters delay new sales to compensate for previous losses

Scrap exporters sold at least 1.3 million metric tons of scrap to Turkey for March shipment and most of this tonnage is yet to be collected. After the Russian invasion of Ukraine, all markets are upside down and the cost of scrap in all regions is going up. At present, the demand is for April cargoes and sellers are busy trying to complete their old-priced tonnages for March. When the scrap market moves up further, the cost of collection also rises further, increasing losses for March, but this seems unavoidable. Accordingly, exporters are trying to delay their new sales for April as much as possible in order to compensate for the mentioned losses, making the current market situation even worse.

Price in US may have hit bottom

In the US market, prices had been softening until recently and have maybe hit bottom now. demand is strong, but domestic mills seem to satisfy most of the demand. Most international mills have stopped giving offers, so no new offers are available anyway. The holiday season is almost over. The only remaining holiday is Ramadan. Furthermore, we are almost at the end of the pandemic, unless another variant surprises us. Prices will go up in some places and prices could at the same time go down in others. Anyone who is not afraid of sanctions will be able to enjoy very cheap Russian and Belorussian origin raw materials and steel.

Not much competition in global longs market, severe competition for scrap

There is not much competition in the market. Prices will explode due to logistical problems and competition will be more and more regional. On the other hand, there is already severe competition among scrap importing countries to obtain scrap, and this is expected to continue. Winter conditions will be over by April, so scrap flows will be normalised. However, the loss of volumes from Russia and Ukraine will have to be compensated for somehow.

Market is currently unstable, outlook is extremely unpredictable

The current status of the market can be described as fluctuating and unstable. The outlook is also extremely unpredictable. Regardless of whether the steel industry does quite well, major questions will exist around increased inflation and possibly lower growth, perhaps stagflation.




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