IREPAS in Istanbul: War in Ukraine has fundamentally changed sentiment and product flows

The 86th meeting of IREPAS (the International Rebar Exporters and Producers Association) was held in Istanbul, Turkey, on May 29-31, 2022, in conjunction with the SteelOrbis Spring ’22 Conference. There were 191 producer representatives from 60 different companies among the record high 766 registered delegates from a total of 59 different countries. There were also 105 registrations representing 51 different raw material suppliers.

At the opening of the conference, Murat Cebecioglu, chairman of IREPAS, emphasized that the war in Ukraine has changed sentiment in the global long steel products market as well as fundamentally altering the flow of raw materials and finished products almost overnight, adding that the market is currently distorted.

The IREPAS chairman said the situation has created many new opportunities, but also major imbalances. He went on to explain that lately some oversupply has been observed here and there in the global long steel products market and added that Russian ferrous materials have been trading at a steep discount to other suppliers, with fewer destinations available.

On the last day of the conference, producers of long steel products, as well as traders and raw material suppliers, shared the conclusions reached at their special committee meetings regarding the current situation in the markets with the general participants at the event.

Raw Material Suppliers at IREPAS: A lot of challenges going forward, downside risks remain

Jens Björkman, chairman of the raw material suppliers committee, listed the factors affecting the steel and raw materials markets recently such as the pandemic, the semi-conductor shortage, the war in Ukraine, the shortages of raw materials and components, high inflation rates, monetary tightening and the impact of the zero-covid policy in China on growth, which have all contributed to a really shaky period, he noted. High inflationary pressure is also forcing the industry to slow down, while the idling of some plants is expected in the coming months at some steel-using producers, signaling negative developments in terms of demand. Mr. Björkman said that there are still pockets of supply shortages in the automotive sector, where production is not in line with demand, since, while demand is strong, production remains slow because of component shortages, and this in turn leads to a deficit in scrap generation. All of these factors indicate that there are a lot of challenges going forward, the committee chairman underlined.

“For the past year and a half, we have been trading at around $400s/mt. However, in the last two months we have seen price movements that we haven’t seen since 2008, amid trade distortion and the impact of the war on actual trade. We have seen $200/mt decreases because prices first increased by as much, though it is a short-term effect,” he said. The raw material suppliers committee indicated that it expects that the market will stay at these levels for a while as the current price levels are considered tradable, with a little downside risk amid the oversupply of scrap.

Looking at the EU, Mr. Björkman said that the region is under pressure from energy costs, while there are also a lot of investment activities in the EU, either to shift production to electric arc furnaces from blast furnaces and in greenfield investments for green steel. He went on to say that building new electric arc furnaces is also going on in North America and Turkey, and these markets which are undergoing backward integration will need to secure raw materials.

Regarding the financing of the trading of scrap and other raw materials, the chairman of the IREPAS raw material suppliers committee indicated that financing has been under pressure in the recent period when prices have been very strong, and insurance companies have not been willing to take added risks. He further stated that, with commodity prices doubling, companies have not been able to insure trade goods, while the banking system has become very sensitive in relation to sanctions and is more hesitant as regards the metals trade.

Commenting on the pig iron shortage, Björkman said that the shortage remains but pointed out that India has introduced an export duty on pig iron and that demand has slowed down in China due to its zero-covid policy, while at the moment the effect of the pig iron shortage on scrap prices has eased. He added that India has also imposed export duty on iron ore, but, since India’s iron ore exports are not significant, this will not have a massive effect on iron ore availability in export markets, although it will support domestic supply in the country.

Traders at IREPAS: Globalization has taken a big hit, things will never be the same

F. D. Baysal, chairman of the traders committee, said that regionalization, in other words protectionism, started with the Trump era in the US, followed by the EU decision to impose steel quotas. Later, this movement continued in a new dimension with Covid when producers realized that they should have inventories ready because of possible unforeseen interruptions, and also the supply chain issues which started with the pandemic escalated with ports being congested and many products arriving at the same time, he noted. “Ukraine was really a major addition to these problems and took the whole thing to another level, with EU manufacturers depending on Russian and Ukrainian supplies for their production. Globalization has taken a big hit and things will never be the same,” Mr. Baysal said.

Commenting on the effects of the war, the traders committee chairman said that initially in the first two months everybody panicked and that is why prices were jacked up, but later, especially after Russian steel products and billet started to reach markets that do not recognize the sanctions, the rise in prices eased. “I think sanctions will increase, but not before the year-end. Circumventing US measures is not possible as there are serious precautions, and it is the same for EU measures as well. However, payments are facilitated through intermediary countries like Switzerland and Dubai,” he stated. Baysal went on to say that unevenly applied sanctions create certain advantages for the countries which do not recognize the sanctions. “I don’t think there is an absolute winner, but countries that don’t recognize the sanctions have the upper hand, though for a short time,” he added.

“Higher freight rates and congestion, especially in the US, is a significant factor in higher steel prices. Congestion will ease slowly. It may take six months to a year and freight rates really have to ease as well. Container prices have doubled, even quadrupled. It is not sustainable. Container lines deliberately pulled old containers out of circulation, causing shortages. Others will come in and produce containers. The situation will change soon. There will also be more ships being built and that will change the whole equation, but it will take time, so higher prices are here to stay,” he explained regarding freight costs.

Producers at IREPAS: Outlook is positive, good days are ahead

Murat Cebecioglu, chairman of IREPAS, mentioned two major problems facing the long steel market, mainly the war in Ukraine and China’s zero-covid policy, adding that the problem in China will probably be resolved quicker than the war in Ukraine, giving breathing space for all. He said that the war had shifted all fundamentals: the supply-demand balance has been broken, supply chains disrupted, prices have increased, there was panic buying in the EU and some countries bought more than they needed.

Talking about certain countries in particular, Mr. Cebecioglu said that peace talks are in progress in Yemen, one of the top three export markets for Turkey. If they bring results, demand will pick up in this market, while in the Philippines, after the formation of the new cabinet, things are expected to be much better. Looking at the Middle East, the UAE produces more than it consumes, so it exports to many countries. In the GCC region, countries that used to be importers have now become exporters, such as Oman which is exporting to the EU in good quantities. When it comes to Turkey, he underlined that it exports to many countries and the war “gave some small chance to Turkey as it is the only alternative” in the absence of Russia and Ukraine. Although exports to Southeast Asia have not been possible for Turkey this year because of China’s presence there, Turkey got the opportunity to replace the supply from Ukraine and Russia, though it was also negatively affected itself, since these two countries are major suppliers. He also pointed out that, with the EU redistributing the quotas of Russia and Belarus to other countries, Turkey’s volumes for the EU have increased.

Commenting on whether Turkey is becoming less competitive in the face of Section 232 measures being replaced with quotas for the EU, the UK and Japan, the IREPAS chairman explained that the US has always been a good market for Turkey, though it had not been possible to sell to this market for the last couple of months as prices were so high at around $900/mt, “but today it is quite possible and deals have already been made with the US. These countries are not an obstacle for us. Selling to the US is always about pricing,” he added. As for the current situation regarding Turkey’s long steel exports, Cebecioglu said that, as the local markets slowed down in most countries, along with increasing prices, Turkish suppliers have a hard time foreseeing the future. He explained that Israel, one of the top three export markets for Turkish long products, has not bought anything for more than a month or so, but now they are coming back to the market, the same as Yemen. “We are in the clear, I think. In the coming weeks, things will be alright,” he affirmed.

Regarding freight rates and shipping costs, the producers committee chairman indicated that freight rates have more than doubled and vessels are waiting a minimum of three to four weeks at ports, resulting in “a huge effect on the steel trade using bulk vessels. When you look at the Baltic Dry Index, it seems more or less the same as last year but China’s Covid restrictions have blocked many ships out of business, creating a big problem, and I don’t know how soon this can be resolved,” he added.

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