Short Range Outlook : September 2022

Dramatic situation in global long products market, huge uncertainty lies ahead

The situation in the global long steel products market is deteriorating as we have entered a rising-cost business cycle. Inventories are lasting a lot longer than expected due to the lack of demand in the market. The situation is dramatic, to say the least, and huge uncertainty lies ahead in the coming month.

Europe and rest of the world seem to be two different planets

Europe and the rest of the world seem to be two different planets as regards the steel market. European steel mills and consumers face an unprecedented increase in energy prices. In addition to the energy crisis, there is also a logistics crisis. Logistics problems in the EU are bigger than ever. Cargoes cannot be moved due to several issues like dry rivers since June, the lack of truck drivers, etc.

Output cuts in EU expected to balance drop in demand, then mills to hike prices

Everyone expected the so-called “post-holiday price increase” in the European market, but it seems this year will be different. Prices in the EU are high and increasing due to the current geopolitical situation, and production cuts are expected soon. Such production cuts will balance the drop in demand due to higher interest rates and costs, as well as shortages of many items. Then we will expect significant price increases by all EU mills.

Dollar-euro rate makes imports more expensive in EU, energy costs a major issue

Insufficient quotas are not helping to get prices down in the EU and so inflation continues to increase. On top of all these factors, the US dollar-euro exchange rate makes imports more expensive. Availability and costs of energy will be a major issue in the EU and may be a big obstacle for the regional manufacturing industry.

Serious congestion hinders imports at almost all US ports, exacerbated by labor shortages

In the US, demand and supply have not changed much lately. However, competition from imports has become thinner. Imports must deal with serious congestion problems at almost all US ports. In some cases, it takes months to deliver discharged cargoes.  Meanwhile, cargoes get damaged due to constant relocation at ports due to limited space. Decreasing domestic prices along with the disadvantages of Section 232 do not help either. Labor shortages add to all these problems, if not being the cause of some. It is hard to find employees, from truck drivers to office managers, as most prefer to work from home or not at all.

Turkish mills under pressure from hike in energy prices, cheap ex-Russia imports

With the recent hike in power and gas prices in Turkey, the cost of manufacturing there has increased by $40/mt meaning mills will have to pay this amount from their own pocket for all orders booked for September, which was not included in calculations when orders were placed. Inflation will continue to be at current levels because of manufacturing-cost increases. Of course, the other problem for Turkish mills is that offers from Russia are around $100/mt less regardless of the product offered.

At least raw material prices have finally stabilized, for now

Raw material prices have finally stabilized, even if only for a short time. There are still margins in some areas and long product prices are higher than prices of flat products in some markets, which proves that either supply is restricted or demand is good.

More closures anticipated in Europe and elsewhere

However, in general, there are no expectations of price increases until supply meets demand, which may happen towards the end of the year. European steel producers have announced closure after closure. More announcements of closures will escalate in Europe and elsewhere. Obviously, this will raise prices and make importing more interesting on paper, though it remains to be seen whether it is worth the risk because larger closures of other economic activities could be observed as the winter approaches.

EU mills expected to import more semis, Russian exports to remain disruptive worldwide

European mills may import slabs and billets made in countries that are not so affected by the energy crisis in Europe. The question is whether these imports will be allowed in without quotas. But one thing looks certain: Russian exports will disturb prices and harm many producers around the world, especially Turkish mills. Most producers worldwide are suffering from limited market access and high levels of competition, especially from Russia which is searching for any possible new markets, with the price being more or less irrelevant.

Current crisis is a once-in-a-generation event, market is unstable and fluctuating

Under all the above circumstances, the market can be described as unstable and fluctuating. This current crisis is a once-in-a-generation event, and the result of wrong policies in the past, inflation, and customers’ expectations of a recession. However bleak the situation looks now in Europe, the steep drop in demand for gas, the fact that gas storage facilities are now 90 percent full, and the measures that the EU has just announced will hopefully curtail the crisis.

Bleaker and unpredictable outlook for the next quarter

The outlook for the next quarter looks bleaker and is unpredictable. There is huge uncertainty on what October and November will bring for the global long products market. It seems these months will be extremely difficult and December and January could be worse. That said, shutdowns are spreading and the supply-demand equilibrium may be achieved sooner than expected.




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