Healthy demand but persisting concerns in global long steel products market

Demand has continued to improve in the global long steel products market, especially in the Americas and the EU. The US market remains particularly healthy demandwise, though supply is still very high, leading to worries that the market may have peaked. Commercial activity is increasing in Central and South America, with the exception of Brazil where the market appears to be on standby mode with the World Cup about to get underway. The northern EU market remains resilient, while activity in the southern EU countries is showing better sentiment and numbers. The MENA markets have been performing well, although Ramadan is in sight and market players are starting to slow down their buying activity.

The demand situation in Asian markets remains at acceptable levels but is under pressure due to very competitive offers from China. Such offers ex-China are heard almost everywhere, increasing the level of competition. Therefore, not only do traditional exporters of long steel products have to find new homes for their material, but even local producers in certain markets are facing extremely high competition. The level of competition can even be defined as excessive, resulting as it does in continuous pressure on prices in a growing market situation. Overall, the demand is reasonable and stable, but prices are poor.

Crude steel production continues at record high rates and so consumption of and demand for scrap is at commensurately high levels. However, this situation may be precarious as most scrap consuming steelmakers are challenged by overcapacity, with EAF-based steelmakers under pressure from the lower cost of iron ore and coking coal and thus of blast furnace iron. It is noteworthy that scrap prices are so significantly above the cost of blast furnace iron, especially in Asia. Indeed, the iron ore-based steel producers are having a dramatically lower cost base in the second quarter compared to the first quarter of 2014. Ferrous scrap and finished steel prices have not yet adapted to the decline in iron ore prices. With iron ore (62 pct) available at around $90/ton CFR FO (or even ex-dock) on spot basis, the Asian market is stuck in a low steel price cycle, eventually causing more iron ore-based long products to be in competition with ferrous scrap-based long products. EAF steelmakers are also pressurized by the lower-cost steel output in Russia and Ukraine due their less expensive raw materials and perhaps some currency advantage, in addition to the pressure coming from China.

There are many inquiries for scrap purchases for near-term shipment, and so on that basis scrap demand is good, but supply of scrap at current price levels appears inadequate today causing prices to firm in some markets. Competition for unprepared scrap remains extremely high as scrap processors pay more than they want but still get less than they need to be able to meet their costs with reasonable comfort.

It can only be good to see steel consumption increasing in major EU countries albeit slowly, after many consecutive years of contraction. Demand in relevant markets is showing consistent numbers and good prospects for the coming months. We can expect a more-than-reasonable third quarter in terms of demand, but the situation as regards pricing remains to be seen.

On the other hand, the summer months and holidays along with the unresolved tensions between Ukraine and Russia will create concerns and give rise to uncertainty.

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