Short Range Outlook : June 2023

Global longs market impacted by variety of negative factors, especially low consumption

The supply and demand balance in the global long steel products market is not getting any better and the main export destinations are requiring lower offers almost every week. The overriding issue for the market is volume and the lack of volume which is in effect coming from the lack of consumption. Consumption has unfortunately not recovered yet from the pandemic. Generally, negative factors prevail in the different regions worldwide, though with China and Asia faring somewhat better.

Turkish longs sector still in dire straits 

Turkish reinforcing bar exports are down 60 percent compared to last year when they were already down 30 percent compared to the previous year. Local demand is set to increase due to reconstruction of the region hit by the recent earthquakes and the renewal of old buildings in Istanbul. However, this will be insufficient to support the Turkish reinforcing bar industry. The wire rod situation is even worse. Despite the new capacities, export figures are down by almost 80 percent. Turkish mills are also facing further difficulties due to the recent rise in scrap prices. On a positive note, there is a possibility that Turkey may return to orthodox fundamentals as far as economic policies are concerned, which would bring some stability and visibility.

Protectionism to continue to prevail globally 

On the other hand, the EU has extended its safeguard measures for another year, which is a clear proof that world trade is no longer as it was defined by the Uruguay Round and will continue with its current protectionist structure which will exert pressure on developing countries. Furthermore, the CBAM in the EU will replace the current safeguard measures in the region within 12 months. Direct and indirect subsidies and state aid will allow the US and European steel industries to remain profitable, while other countries will be suffering due to the unfair competition from certain Asian exports.  The competition in open markets is very tough as Asian prices are very competitive. China is dominating the world market, with some Middle Eastern countries competing closely. Meanwhile, there is still lots of focus on reducing CO2 emissions worldwide.

EU market hit by many negative factors all at once 

The situation as regards the EU mills has not improved on the sales side, though it has become more complicated on the raw material side with the scrap market holding firm. Demand in all EU countries has declined. Apart from private housing and industrial building construction, infrastructure projects are also now rare, which is the delayed impact of the slowdown in public projects two years ago when prices had reached up to €1,500 and higher for cut and bend and governments were asked to let steam out of the situation to avoid even further price jumps. Now everything has hit home at the same moment. Inflation, high interest rates and less public spending due to other important issues. What is going on politically in the world does not help the economy to recover in the short term. Market prices are now depending on variable costs for many EAFs. The market is entering the traditionally very quiet months of July and August when construction activity slows down. There are a lot of export offers at prices that suggest sales for US dollars under the usual costings. There are many newcomers in the export markets.

Slower demand in US for time of year, funding of new projects now more expensive 

Demand in the US market is slower than usual for the start of summer. In spite of almost everything returning to normal in the US, the PMI for manufacturing has been contracting for seven straight months. Steel prices did soften a little due to the lack of high demand and the easing off of scrap prices. The banking crisis and high interest rates do not support new private construction activity. Funding new projects has become more expensive and difficult to finance. Infrastructure projects continue their slow pace but are fully supplied by domestic mills working with healthy margins. With very small margins, imports are not as competitive except from neighboring countries which are not subject to Section 232 duties.

Chinese producers doing better than most, new stimulus also awaited in China 

Chinese integrated mills have good positive margins, which have led them to purchase iron ore at higher prices, although coking coal prices have gone down. As a result, some Chinese producers should be happy. But not everyone else is so content. Margins are shrinking in the EU, UK and in North America as spot prices are being adjusted lower to attract volumes. Supply is being partly restricted, also in the hope of creating demand. China may try to reduce capacities to bring balance to the market, but it is not very likely that the government will be able achieve this. If they succeed in slowing down Chinese steel production, it may bring some relief within a month or so. However, profit margins are set to remain low. There have also been some recent good perspectives regarding an anticipated new governmental stimulus in China.

Overall gloomy outlook predominates in global market 

Given all the above circumstances, the current status of the market can be described as unstable.  The outlook of the market for the next quarter is not very promising, to say the least. There are political expectations (elections) in almost every region in the world and the summer holidays are approaching in Europe, and these factors may bring a stagnant and anxious period as regards both prices and demand in the international market. The continued rebalancing on the side of raw material supply and finished steel products, as well as a lack of consumption in the short, medium and long terms, can be expected. The downward movement of ferrous scrap in the US looks set to continue into July. Steel producers will probably give up the margins resulting from these decreases in their search for volumes.




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