Short Range Outlook : December 2022

First quarter of 2023 could be very difficult for global long products market

Raw material costs are increasing once again and energy prices are expected to be very high at least until March 2023. Mills are facing cost pressures once more in the global long steel products market. Business activity has been reduced during the past month and, even though scrap and iron ore prices have gone up, net margins have either at best kept pace or in some cases narrowed. In this overall context, the first quarter of 2023 could be a very difficult one for the global long products market, even the worst quarter in a long time.

Mills will be forced to cut outputs further to avoid incurring losses

It looks like some mills are trying not to reduce their outputs too much or only as much as necessary as they will be finishing this year with positive results due to the good performance recorded in the first half of the year. However, the situation will probably be a lot different next year and they will be forced to reduce outputs further in order to minimize losses on their balance sheets. Another reason is that, if they continue to maintain their production levels and sell at a loss, it is very likely that they will face trade measures. In these circumstances, it will take some more time for a new supply-demand balance to be seen in the market.

Uncertainly prevails in EU market over supply and energy costs, imports an option

The gap between domestic and import prices has shrunk so much in the European market that more and more mills have bought domestic, respectively inner EU material in small volumes as uncertainty prevails. Steel buyers in the EU market have started to become nervous about what will happen after the holidays, as the anticipated longer revamps by mills will very likely limit supply. On the other hand, there is a big question mark over the weather conditions in the first quarter of next year. If temperatures remain mild, then demand for construction, which has been healthy so far, will pick up earlier and help mills to raise their prices. However, there is also uncertainty in relation to energy prices, which places a question mark over everything within the EU.

Economies doing better than expected, Buy American package in US could stir up trade battle

After the shock of the war in Ukraine and of energy price hikes, the markets seem to have digested the interruptions of logistic chains and economies look better than expected. The general outlook for 2023 is also better now. That said, in the US the new Buy American investment package will be in force from January 1 and it will be a huge challenge for the EU. A new trade battle could be in the offing.

Possible new official stance on Covid in China could boost steel demand

Covid-19 seems to be under control everywhere except in China. There are some signs that China may quietly dismantle its zero-Covid policy after the Chinese New Year holiday in January. This will hopefully lead to an increase in demand for all steel products.

Softer approach to interest rates could also have a positive impact on steel demand

December is a short month, and there is pent-up insecurity on what energy costs will be like in January, or even tomorrow. On the other hand, we understand governments are concerned about markets and so they talk more softly about interest rate increases and the central banks also appear to be easing off on the issue of interest rates. This may also have a positive impact on demand.

Competition becomes fiercer and increasingly regionalized

Competition in the market is very difficult and fierce wherever allowed. Otherwise, it is more and more regional as markets are increasingly protected. Domestic mills compete with each other and with possible imports. Volume chasing by domestic mills is very detrimental, leading to even lower prices, without the increase in additional volumes.

Outlook for the current unstable market is very challenging and unpredictable

Under these circumstances, the current status of the market can be described as highly unstable and unpredictable. The outlook is also very challenging and unpredictable. The outlook for the first quarter of 2023 is negative and it could be the worst quarter in a long time. The situation is certainly tough, but with the end in sight.

 

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