The situation in the global long steel products market has become a little bit more complicated than expected as a result of difficulties in emerging markets, and recent developments particularly in Turkey, according to the short-range outlook report issued by IREPAS, the global association of producers and exporters of long steel products.
Global steel production continues to increase
The annualized crude steel production of the world steel industry in December last year decreased to 1.52 billion metric tons as the average daily rate of production declined by 2.5 percent in the given month compared to the previous month. The capacity utilization rate of the industry in December turned out to be 74.2 percent. According to the World Steel Association (worldsteel), the 65 countries reporting actual results produced 1.58 billion metric tons of crude steel in 2013, representing a 3.5 percent increase year on year, with China being responsible for most of the growth.
Significant declines in cost items
According to the IREPAS report, steel production and therefore raw material consumption were at record rates. However, market factors quickly turned negative by mid-January this year as political events in Turkey escalated to a level capable of adversely impacting the Turkish economy and steel industry, especially in combination with the already difficult global steel market conditions, which were further exacerbated by high costs and shortages of energy. Other factors including a rapid drop in iron ore fines prices started to emerge in mid-December, with prices now at their lowest level in six months. This, combined with falling coking coal prices, pushed the estimated cost of blast furnace liquid iron (BFI) in Asia -based on traders' opinions- down from around $390/mt in mid-December, with a decrease of $27/mt witnessed up until the beginning of February. Although the Japanese yen has recovered a little in recent days, many currencies have weakened against the US dollar, with the yen weakening significantly, and this lowered the cost of Japanese scrap imported in US dollars to levels buyers and sellers were unable to resist. Finally, bulk freight rates in both the Atlantic and Pacific began to decline and have fallen by about 29 percent since mid-December.
Steel industry further moves into shakeout
IREPAS pointed out that 2013 reportedly saw the greatest number (27) of steel trade cases filed worldwide since 1999 (34). Yet, more steelmaking capacity is coming on line or is being planned. It looks like the steel industry is moving further into the shakeout required to eventually restore industry health for those that survive. Conditions are unlikely to see a longer-term positive change until excess capacity in steel, mining, scrap processing, and shipping are utilized or rationalized.
Currency turmoil causes uncertainty
Even though expectations for demand are still positive in certain key markets, the recent currency turmoil, especially in Turkey, has created uncertainty and has caused a slowdown in purchasing activity during the last couple of weeks. The situation will become clearer after the Chinese New Year holiday, but demand is very slow for the time being due to the negative developments in emerging markets, IREPAS stated.
Fall in scrap prices was necessary
Scrap prices are also on a weakening trend and such pressure does not help long product prices. A large portion of the worldwide steel producers are operating with negative cash flow and are at the same time experiencing an increase in borrowing costs. The issue of the credit worthiness of steel buyers presents tough decisions for steel suppliers. At the same time, however, competition in the marketplace is still extremely high.
Lower raw material prices are a necessary adjustment in a difficult steel market and are beginning to show results as more steelmakers consider restocking, IREPAS noted.
Outlook for February
Regarding the February outlook, the trade cases in certain countries will have a positive impact on their respective domestic markets. For instance, the demand level for reinforcing bars is still good in the US; however, there are now even more offers chasing the same volume of demand. The antidumping action by US mills against wire rod imports from China constitutes a new battleground and the Chinese wire rod exports will have to find a new home.
In fact, more steel was consumed in 2013 than in 2012. The strengthening of major economies like the US, Japan, UK and the EU should push steel demand up further. That said, some more time may be needed for stabilization.
According to IREPAS, the Iranian market has so far not lived up to expectations that it would become a driver of demand, but it may still play a big role this year. Some improvements may also be observed in the Asian market eventually.