Better supply-demand balance in global longs market but China, trade measures and strong price competition keep the pressure on

The supply-demand balance  in the global long steel products market has been stable and more in equilibrium recently, compared to previous times, especially in China. Such a balance has been helping buyers to maintain their positive sentiment although, on the other hand, price volatility in raw materials and final products is creating a degree of uncertainty that is slowing buying activity somewhat. Stock levels in the supply chain seems to be on the lower side.

At the same time, trade barriers are increasing, particularly in the US, and also in Europe. Furthermore, the decline in Chinese steel prices, the increase in Chinese exports and more intense price competition have raised the concerns of players in the global market.

Prices so far not benefitting from better supply-demand balance

Prices have so far not benefitted from the better balance of supply and demand. European demand for long steel products is increasing in many areas, but mills are still fighting for orders and this does not allow prices to move up.

Improved supply and demand in US, demand still weak in South America

Demand is somewhat better than in the past in the US market, but there is even more supply of long products. For this reason, price competition is high. Demand ín South America remains weak and no change is expected in this market in the short or medium term. Capacity utilization remains very low in South America.

Dramatic fall of Chinese steel prices raises concerns

The dramatic fall of Chinese steel prices in general has started to raise concerns since the beginning of March. There never seems to be a floor price in the Chinese markets.

Price war worsens in export markets due to return of China

A potential of an extra 10 million metric tons flowing from China to the global market is insignficant to the Chinese, but is dramatic for the rest of the global industry. Small shifts in Chinese demand and pricing have tsunami-like effects in Turkey, the CIS, the Middle East and, of course, in the Asian markets. The price war in the markets has worsened compared to previous months as China is back in the export market.

Ferrous scrap exported from China for first time but this may be short-lived

After China ordered induction furnace closures due to environmental and VAT-avoidance issues, we have seen ferrous scrap being exported out of China for the first time. This may be short lived as Chinese mills are expected to raise the recycled component in their finished steel from the current level of 10 percent to 20 percent by 2020. We can also expect that lower Chinese scrap prices will attract domestic consumption going forward.

Solid demand for ferrous scrap in Europe and US

Demand for ferrous scrap remains solid in Europe and the US as an effect of stronger industrial demand which is driving down availability.

Worrying rise in trade cases in Europe and US

The industrial supply chain has strengthened, and the supply-demand balance in the long steel products market is obviously better. Moreover, price fluctuations are also less volatile. Having said that, increasing trading cases in the US and Europe are worrying. In the US, there are major concerns regarding the initiation of the Section 232 investigation on steel imports.

Optimism due to improvements in EU and US dampened by rising Chinese exports

We could have seen better times with the EU growth rate picking up and the expected bounce in physical steel consumption in the US in line with the promises of the Trump administration. However, exports from China are picking up again.

Outlook for second quarter still satisfactory

Competition in the global market has increased in the second quarter compared to the first and remains high. The market is stable only in certain areas but fluctuating in many others. Nevertheless, the outlook for the quarter is still satisfactory. Economic numbers keep improving in general, and demand for steel is increasing moderately as the general sentiment is positive.  

Ramadan could put entire markets in wait-and-see mode until end of summer

However, the summer season lies ahead, though this year Ramadan precedes the holiday season, which may put entire markets in a longer wait-and-see mode until the end of summer. With less buying of stock steel, steel producers will certainly hold off on optimistic buying of inputs like coke, iron ore, DRI, pig iron, HBI and scrap, causing prices of these inputs to drop to lower levels, which in turn will lead to less stock buying of steel.

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