Strong supply pressure and agressive offers in global long steel market

The global long steel products market has been under supply pressure with strong and agressive offers in terms of volumes and prices since the beginning of 2015.

Healthy demand in North America

Markets in North America keep showing healthy demand. The reinforcing bars market in the US increased to almost 8 million metric tons in 2014, although imports at competitive pricing have resulted in strong competition. A few countries in Latin America are showing economic resilience, such as Mexico, Chile, Colombia and Peru.

Improved confidence in Europe, weak euro boosts exports

The decreases in oil prices and the quantitative easing announced by the European Central Bank (ECB) are helping consumer confidence in Europe, which will probably push the economy to accelerate in the EU in the medium term. In addition, the weaker euro is helping European exports and overall demand for steel products is improving in Europe as a result of the aformentioned developments. For example, demand has picked up in Germany and the UK. That said, the improvement in demand is not enough to stimulate prices as, particularly in the UK, imports are at historically high levels.

The existing supply pressure may ease a little while our Chinese colleagues are enjoying their holiday season. However, in general, there is no sign that there will be a significant easing of supply pressure in the coming period as there will be an increase on the supply side due to excess production in China on top of the slowing demand in the country, especially for long products, while domestic consumption in Russia is low and European exports are increasing due to the weaker euro.

International scrap market turns sour

The international scrap market turned sour at the end of January when it became clear that US recyclers had held back material from the end of 2014 in order to keep domestic prices elevated. Chinese semi-finished steel exports have displaced US scrap in containers or at least put heavy pressure on pricing. The fundamentals have turned negative in the international scrap market, while scrap prices have in general now regressed to 2009 levels. The European domestic markets are still relatively well protected by the weak euro, which likely will remain weak as the ECB will switch on its Asset Purchase Program in March, buying €60 billion worth of government bonds per month, thereby essentially printing money. Turkish scrap prices have been too high compared with other areas which have added interest in selling in Turkey, in turn increasing the pressure on pricing in Turkey. However, the sudden decrease in scrap prices will put more pressure on importers’ decisions. The market circumstances will definitely force steel mills to lower their purchasing prices as well.

Weaker euro may negate advantage of cheap scrap for EU mills

The scrap price decrease will probably not bring an advantage to EU mills as the weak euro will have a negative impact on the attractiveness of scrap imports. It will also act as protection against imports of long products to some extent. On the other hand, the weaker euro will help some mills in the euro zone to export more to countries outside the currency zone. Mills which hold Swiss homologation have a significant advantage now.

The most recent weakening in scrap prices has already led to an instant fall in long steel product prices in the EU market. Relying on their inventories, buyers are holding back to see the reaction of mills to the lower cost of scrap, whereas the mills are assessing how to react based on their decent order books. Turkish mills are strongly targeting the EU market once again and their price spread with the European mills is becoming narrower. Scrap demand in the region is also expected to remain firm.

Demand for long products will continue to improve in North America too, but it has yet to be seen where scrap will find its floor and what competitive balance is achieved between EAF-based and BOF-based production. The ongoing declines in scrap prices may change the picture, reducing the advantage currently held by BOF-based production.

Cheaper freight costs boost competition in all destinations

Shipping costs have come down due to lower oil prices which makes long routes competitive and so at the moment competition is still extremely high in all major destinations.

With lower scrap prices, all eyes on possible rebalancing of production costs

Mills’ demand for scrap is expected to increase as prices come down to more sustainable levels. However, the rebalancing of the production costs of the mills which use scrap and those which use iron ore will be the most interesting development in the market.

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