Steel Industry Insight

Will demand pick up in September as expected?

This year the summer period was quite difficult for the iron and steel industry. Steel trade in Turkey was stagnant for weeks on end due to the summer lull and the unforeseeable export policy of China, coupled with the failed coup attempt in July.

Other markets were also affected by the summer stagnancy and China’s unpredictable moves. These markets experienced an unpleasant summer as well.

At the start of September, we have left behind a tough summer period, though there is still another obstacle ahead of us – the Feast of Sacrifice holiday. It is expected that in Turkey and the Gulf countries trading activity will continue to remain quiet before the holiday.

Will demand pick up in September as expected?

It is realistic to expect a slight recovery in demand after the holiday following a long period of stagnancy. However, whether the recovery in demand will be sufficient to cheer the steel industry up is doubtful.

Unfortunately, there is no improvement in the supply-demand equation, which has been the biggest problem facing the steel industry for a long time now. China announced production cuts this summer to control environmental pollution; however, the announced cuts were short-lived. Some production cuts were negligible, while some at least supported sharp increases in Chinese domestic prices. These price increases failed to be reflected in the Turkish, European and Gulf markets since demand in these regions was so bad. While the short-lived production cuts were no solution for the oversupply problem in the global steel industry, the price increases caused by the supply contraction in China triggered outdated Chinese zombie plants to resume production. Accordingly, the production cuts in China were not taken seriously in the global market and Chinese exports remained a threat. Continuing expectations of exports from China caused global market players not to increase their prices and to put pressure on those who chose to raise their prices. As a result, prices regressed to their previous levels.

Entering the month of September, the lack of a solution to the industry’s biggest problem, i.e., oversupply, is still burdening the market. The fear that China will return to the market with competitive prices will continue to make buyers nervous in September as well. Additionally, Turkey is facing issues such as terrorist attacks, political and economic uncertainty, and cross-border military operations. On the other hand, the Gulf region is trying to adjust itself to the new level of oil prices, which have seen record declines this year. The CIS region is struggling amid antidumping duty investigations, while the EU is showing quite slow growth. In the meantime, the US is strictly monitoring the arrival of imports.

So where do we locate the demand which will be enough to raise our spirits?

The answer is, unfortunately, nowhere!

While it is obvious that demand will pick up in September compared to the summer period, it is equally undeniable that the recovery will not be significant.

To talk about a real recovery in the iron and steel industry, first, the supply and demand equilibrium should be restored with the implementation of definite measures, not just temporarily. Trade cases, quotas and other measures have already proved to be insufficient for steel demand to recover without restoring the supply and demand equilibrium.

Hopefully, though, the market will benefit from the expected recovery in demand in September to the maximum possible extent.

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