Decent demand in global long steel market but excess supply still prevails

The recent increase in metallics prices has imparted positive momentum to demand in the global long steel products market.

Demand is still good in North and Central America and in some countries in South America. On the other hand, customers have been heavily destocking during the entire first quarter in some other markets, reducing buying quantities in these markets.

Long steel demand also boosted by rising scrap prices

Demand for long steel products in the EU market is increasing as the general economic and financial environment is improving. There is a seasonal influence on demand, too. The increases seen lately in ferrous scrap prices have also been helping to give buyers a certain level of confidence about the future price levels of steel products. On the other hand, the current value of the euro still restricts import alternatives, though the recent strengthening of the euro against the US dollar has made exports from the EU more unattractive.

The recent increase in scrap prices has also had a positive effect on export markets, boosting demand for finished products. However, all such improvements in demand are offset by the existing overcapacity situation in the global long steel products market.

Healthy demand for scrap in Europe and the US

On the scrap side, European demand has solidified during the spring and steel mills seem to be running with fairly decent demand. The sharp drop in steel pricing in the US market deters steel imports and seems to be healthy for the scrap market going forward as it adds to the competitiveness of domestic producers. US domestic demand for scrap remains fairly good and the demand outlook for scrap in the country is decent. Asian demand and pricing continues to be sluggish due to the alternatives from China.

Impact of Chinese exports still felt everywhere

Net exports from China rose by 50 percent in the first quarter and the effects of this increase are felt almost everywhere in the market. Business is becoming more and more regional and mills need to reposition themselves accordingly.

There is a question mark over the sustainability of the positive momentum in the markets since the Purchasing Managers Index (PMI) in China does not look so positive. That said, it seems China intends to reduce its steel capacity drastically as the government has expressed strong intentions to close every unproductive mill to bring supply and demand into balance.

The balancing of the markets will mean that adjustments to the situation will be more sustainable. There are no sizeable market that are exempt from the global trade.

Antidumping moves in US and Europe

The implementation of protectionist measures in the steel and scrap trade clearly illustrates that the markets are in need of adjustments going forward. Renewed antidumping claims from US steel producers against Chinese producers and the increased import duties on rebar in Egypt are examples of hurdles which negatively impact trade and add inefficiencies. Competition in the market is still very strong and forcing the limits.

Producers in the EU are going to benefit from the recent antidumping investigation against Chinese Cares-approved rebars which will certainly prevent traders and buyers from continuing with new purchases at least for a certain period of time as the investigation creates huge uncertainty.

Russia versus China

Recently, Russian exporters have been enjoying a significant cost advantage over the Chinese origin competition in the market and the Chinese exporters do not seem to be willing to compete aggressively with Russian origin offers. The significant drop in Chinese exports in February and March has helped a lot to create a better atmosphere particularly in the Americas. The low ocean freight rates are, at the same time, a positive condition to help with margins even if slightly, but at the same time constitute evidence of decreasing volumes of transoceanic deals.

EU may be most stable and sustainable market in H2

The EU area may be the most stable and sustainable steel market in the second half of 2015. It has certainly been extremely price-stable during the past 18 months compared to what we have seen in North America and in the Asian domestic markets.

Excess supply still a factor but price downtrend seems to have ended

The global long steel products market can be considered doing reasonably well in terms of demand but is still experiencing the impact of excess supply. This situation is not expected to improve significantly, though it seems that the downtrend of long steel prices has come to an end, provided iron ore prices stay in the range of $50-60/mt.

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