Chink of light for long steel market as raw material prices approach bottom

The supply and demand imbalance in the global long steel products market has worsened lately. Although real demand is not that bad globally, the continuous decline in prices of raw materials is causing a delay in purchase decisions, resulting in a decrease in apparent demand. In some markets, especially in Europe, this is putting pressure on prices. Demand seems to have dried up almost completely in many regions, while stocks at steel mills are quite high. The mills have been and are still trying to adjust production but apparently such efforts have not been sufficiently significant in scale or consistent enough, unlike the success of output adjustments at the end of 2008 and in early 2009 when the industry experienced a similar negative business environment. Consequently, there have been plenty of options for buyers in the market lately. Under these circumstances, buyers are opting to wait until the last minute before placing an order and, when they do eventually order, the lead times are quite short and transaction volumes are being kept as low as possible.

The purchasing managers index (PMI) in the USA is once again below 50 percent, which is surely not good news. Domestic market demand in Turkey has been quite good, though there is a certain degree of uncertainty now following the recent developments in the country. On the other hand, the situation is improving in the Arabian Gulf markets due to big infrastructure projects. As a result, mills in the region are working at full capacity.

In fact, consumption of steel-related items is, remarkably, not that bad. Competition in the market is extremely high, and the aforementioned buyer behaviour puts pressure on prices. In response, mills are still cutting production, which has been pulling down raw material prices. Thereforemills are looking to increase positive margin. At least, raw material prices are either at or very close to the bottom, and so the downside room appears to be limited.

Outlook for June

The situation in the market is critical. The holiday season is ahead and there are no great expectations for the short and medium term. That said, raw material prices are now very close to the bottom and a possible rebound in the coming weeks would change the mood in the long steel market.

Would you agree or disagree?