Short Range Outlook : March 2023

Better demand in global longs market

It seems that demand in the global long steel products market is somewhat better after the holiday season. There have been signs of a pickup in demand everywhere in the past month, apart from the EU. The supply in the market has been adjusted accordingly, which has had a positive influence on prices. Consequently, the whole market dynamic has changed. The price spread between Chinese origin reinforcing bars and Turkish origin reinforcing bars on FOB basis now exceeds $100/mt.

EU mills’ margins squeezed, still to be seen if price rises will stick

Customers have been destocking since autumn 2022 in the EU market. Mills are running at very low capacity and now the prices in the EU are lower than in many traditional export markets. February was also a very quiet month, with very little activity. Despite the good weather, inquiries from construction sites were much lower than expected. Most cut and benders had their yards fairly well stocked and so had no need to replenish. That has put domestic mills under pressure and led to lower numbers. Raw material prices have strengthened considerably amid very low demand for finished products and mills’ margins were squeezed into the red. Mills had to increase prices or start shutting down their EAFs. By the end of February, mills announced increases, but it remains to be seen if they will be sustainable in the current environment. Imports are unable to compete with EU domestic offers. If the increases are accepted, the impact may be considerable. Lower energy prices help little because electricity prices in the region remain unpredictable.

Turkey still limited in terms of possible export destinations

Not much change has been seen for Turkish long steel exports. There are still very limited destinations where Turkey can be competitive, like Israel and Yemen. Turkish mills can only ship west in the search for a positive margin. Energy prices are helping both ways; reducing inflation and the cost of manufacturing, which creates a positive mood. But although energy prices are softening for Turkish mills, there is still a big gap with the offers coming from North Africa, the GCC and Southeast Asia. There are many countries exporting today to the markets where Turkish mills were the main players.

Turkish mills to focus on post-earthquake reconstruction work

The Turkish mills have been meeting with ministers and government officials about the reconstruction of the area hit by the recent devastating earthquakes, and they have received a very clear message from them that they will not accept any price increases for steel and cement and that they are ready to take any precautions necessary. It looks like the total demand in the Turkish domestic market will not change much, but the focus of the demand will. The government will be focusing all their efforts on reconstructing new housing for those who need shelter and so all other works will be on hold for a while.

Ferrous scrap demand increases

The general demand level for ferrous scrap increased during February and continues in March. The first quarter of 2023 has seen substantially lower energy prices, which has alleviated the strain on industries. Production levels have normalized. Subsequently, raw material inventories have had to be restocked at a higher pace. Raw material availability was outpaced by demand during the second half of February and early March. The outlook remains tight. The Turkish government had said it would impose import duties on flat steel products to promote domestic production, which would create additional demand for ferrous scrap imports. However, the implementation of the duties has been postponed in the aftermath of the earthquakes.

Scrap prices and demand on the rise in EU and US

Asian scrap prices have typically been higher than Turkish scrap prices, but now transaction prices to Turkey are about the same. Concurrently, scrap demand and prices are on an upward trend in Europe. The same is true in the US market, but the increases there are larger.

US mills remain strongly positioned, imports negligible

The US is still producing fewer tons than in 2021 and 2022. Presently, it looks like only the US mills have pricing power and very healthy profit margins. As such, imports into the US are negligible. General demand in the US is flat, though a slowdown in construction is expected in the coming months for both residential and commercial construction. Interest rates are at their highest in years and further increases are expected soon. Domestic long product prices were too low for months and have now started to move up, giving a slight chance to imports, but this will soon disappear with the increases in international scrap prices. Bulk prices have softened a bit, but stevedoring rates are high at congested ports. Labor shortages are not expected to change anytime soon.

China still constitutes a big hope for the global longs market

Now that we can consider the Covid-19 pandemic to be behind us, China, although slow, is restarting its economy. Demand is improving in the global market and the Chinese authorities are releasing positive messages about growth. China still constitutes a big hope to start the wheel running even though it has started much slower than expected after the Chinese New Year holidays, despite the previous forecasts for a rapid rebound.

Anticipated reconstruction work in Turkey provides additional support

The anticipated reconstruction works after the devastating earthquakes in Turkey are driving market expectations at the moment. Electricity prices are receding and the energy costs of mills are decreasing. Europe has lower energy prices and so its industries are able to operate more easily.

Logistics becoming easier and cheaper, bottlenecks are disappearing

Logistics are becoming easier and cheaper. Sea freight was at low levels during the winter as demand was slow and ship availability decent. Logistics bottlenecks are starting to disappear, which gives more room for new positioning and import options in markets.

Competition medium to strong, apart from protected markets

Competition in the market is medium to strong and very fragmented wherever available. There is not much competition in markets which are heavily protected. The markets are still more regional than global.

US imposes 70 percent tariff on Russian iron and steel products

The US has put a 70 percent tariff on Russian iron and steel products even though the last ex-Russia imports were seen in June 2022 due to the toxicity of Russian material and the threat of running into trouble with banking regulations. It can be assumed that the US is now leaning on Brussels to do the same.

Uncertainties in international market, except in EU, US and Turkey

There are fluctuations and uncertainties in the international markets, with the exception of the EU, the US and Turkey. The ferrous market seems to be in perfect shape to proceed.

Outlook varies, satisfactory for the US and Turkey, unpredictable for EU

The outlook also varies for different markets. It is satisfactory for the US, Turkey and many other markets. However, the unpredictability in the short term, particularly in the EU, cannot be disregarded. On the other hand, the outlook for the ferrous scrap market is very good.




Comments are closed.