Predictions for global longs market very difficult amid unprecedented virus impact

It has become extremely difficult to predict the supply and demand situation in the global long steel products market. The  impact of the Covid-19 coronavirus pandemic on overall economic situations or conditions in countries and regions will be at different levels, which might change the dynamics of steel demand and production separately.

Regionalization of markets being reinforced

We have often talked about how the markets have become regionalized and this trend is now being reinforced. Some regions may see shortages and some others may see surpluses. It will take more time for these to be balanced out, or significant price differences may become persistent as was experienced decades ago.

Some recovery in China, rest of world in earlier phase of lockdown

As the Covid-19 virus has moved from China to the rest of the world, we have observed some disparity between regions. Some rebuilding and stimulus going on in China has propped up pricing and demand. In many parts of the rest of the world, we are in the early or middle stage of the lockdown. This simultaneously affects supply and demand. Some have to stop production due to intricate supply chains being breached during the lockdown periods. Some have lost orders. Most businesses are running at significantly lower rates, if at all.

Lack of coordination in steel capacity stoppages

The stoppages of active steel production capacities are not really being coordinated. Far too much capacity will disappear at the same time in certain regions. It is highly likely that these production capacities will come back to the market in just as quick and uncoordinated a manner.

Negative economic forecast for Brazil, economies in Europe and Turkey also struggle

In Brazil, the oficial forecast for GDP has changed from +2.1 percent to -1.18 percent and the major steel producers are announcing stoppages to balance supply and demand. Steel demand in Brazil may fall 20 percent this year as per the latest forecast by IABR (Instituto Aço Brasil). Likewise, there are many mills announcing stoppages in Europe and in Turkey, where the economies are facing serious challenges.

Raw material prices plummet, supply shrinks, future projections difficult

Oil prices have tumbled as global demand has plummeted. Raw material prices have followed suit. Incoming raw material supply is slowing down fast. Projections are difficult to make. In some cases, demand is still good but raw material needs cannot be filled. This is a very unusual situation. Ferrous scrap availability is significantly lower as industry and trade has been grinding to a halt through the Western world.

Pick-up of activity in China gives some hope to global market

The pick-up in activity after the coronavirus crisis observed in China gives at least some sort of hope to the rest of the world currently in lockdown. China is also showing some recovery in the long steel segment amid strong investment from the government.

Current situation in global longs market clearly unstable

On a separate note, conversion margins are still stable – not large enough, but stable.

However, the current situation in the  global long steel products market can be described as clearly unstable, just like global and regional politics and economies, and like the progress of the virus pandemic.

Focus in Q2 to be on volume survival, some hope for rebound in Q3

Under these circumstances, the second quarter will be one of volume survival, and the fate of the global longs market in the third quarter will be determined by how the virus peaks. There is definitely no reason for economic activity not to rebound once we are past the peak of the virus crisis. All we have to avoid is social unrest.

Q2 to be a low point in pricing and volumes

There will be massive capacity reductions from scrap to billets to long products during the second quarter, on top of the Easter and Ramadan periods and the uncertain evolution of the impact of the coronavirus. The second quarter of 2020 will likely be a low point in pricing and volumes. The main question will be how long after that it will take to return to normality.

Protectionism may be intensified, regionalization to be the norm

Protectionism can be expected to continue and perhaps may be intensified as countries try to put their domestic problems first. Regionalization will be more the norm.

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