New Year brings some positive signs for longs market, at least for short term

Business slowed down due to the holiday period in many long steel markets worldwide, but the balance of supply and demand has been maintained as many mills opted for long holiday breaks.

The first week of the year showed some signs that 2013 may start with an upward trend in prices. Also, recent data indicate that major economies in the world may perform better than expected this year.

Following the production cuts we mentioned in recent months, we see some balance between supply and demand. However, a major improvement has been witnessed in China and this has also been affecting iron ore prices. China’s plans for massive infrastructural investments have had a major positive impact on the market. Increasing domestic demand in China will reduce the appetite of Chinese producers for export activity and the country’s investment plans are reflected in steep price increases for finished products.

Unfortunately, not enough EU production capacity has been idled, while consumption in most EU countries has continued to go down.

Raw material prices are rising due to seasonal effects as there are expectations of a severe winter in the northern hemisphere. The increase in iron ore prices also pushes ferrous scrap prices higher. Demand for raw materials seems to be healthy so far but it remains to be seen what the situation will be after replenishment of winter inventories has been fully completed.

In the North American market, demand is more or less unchanged but costs are increasing on the back of higher raw material prices, making sales a bit more difficult. That said, business possibilities for bigger volumes with better pricing conditions are also observed in the global market. The agreement reached on the fiscal cliff in the US has also brought some relief to the market.

New import barriers in some markets in the MENA region and in South America have increased the already very high level of competition in other markets. There is enormous competition in the EU market, not only between EU-based mills but third country competition is more and more evident.

Even non-traditional sources have become active in the global market, increasing competition further. Most importantly, margins are still missing for producers.

Outlook for January:

Increasing raw material prices are stimulating undecided buyers to book tonnages now on a bigger scale and with even longer lead times as they expect this trend will prevail throughout the first quarter at least.

The price rises observed in the market have given hope for increased global demand in steel. Consequently, the market is improving slightly and will likely be characterized by greater stability in the short run as a result of short-term increased activity after the holidays. However, the outlook for the mid-to-long term is still unstable and uncertain.

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