IREPAS: Better supply-demand balance in global longs market

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, according to the short-range outlook report issued by IREPAS, the global association of producers and exporters of long steel products. Such a balance has been helping buyers 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 seem 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.

 

IREPAS has observed that 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.

 

According to the IREPAS report, 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 in South America remains weak with very low capacity utilization and no change is expected in this market in the short or medium term.  

 

A potential of extra 10 million metric tons flowing from China to the global market is insignificant 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, IREPAS noted.

 

The IREPAS report said that the ferrous scrap exports out of China 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, adding that lower Chinese scrap prices will likely to attract domestic consumption going forward. Meanwhile, demand for ferrous scrap remains solid in Europe and the US as an effect of stronger industrial demand which is driving down availability.

 

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. 

While the higher growth rate in the EU and the expected bounce in physical steel consumption in the US in line with the promises of the Trump administration might have indicated improvement, rising exports from China have dampened optimism.

 

IREPAS is worried that Ramadan, which precedes the holiday season this year, 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.

 

 

According to IREPAS, 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.