The global long steel products market is still under supply pressure with strong and aggressive offers in terms of volumes and prices, according to the short-range outlook report issued by IREPAS, the global association of producers and exporters of long steel products.
Imbalance between scrap and iron ore prices closes faster than expected
The imbalance between prices of iron ore and scrap has been closing as expected, but at a much faster rate. Lower scrap prices will benefit EAF-based producers and help them to recover their margins while competing with BOF-based producers. Long product prices have been following at a different scale, depending on the area and product, causing buyers to hold and wait for the bottom. The IREPAS reported pointed out that stocks in the supply chain are not high and real demand is still good in many areas, but buyers prefer to place orders locally and in small lots, to reduce the risk.
US market maintains its strength
The US market has been maintaining a reasonably better economic performance. The economy in the US will continue to grow in 2015 and demand for long products will increase. Buyers are expected to come back to the market as stocks will need to be replenished. However, the states which are heavily dependent on the oil business are experiencing a slowdown and steel demand in these energy producing states has weakened. The strong dollar and the weak euro makes the US market a better option for exports, which is putting more pressure on price stability. Under such circumstances, for the moment most US buyers are seeking to hold out for better pricing to come, IREPAS noted.
European market now appears very healthy
After many years of recession, the prospects for the European economies appear better for 2015, as low oil prices can help boost GDP by as much as 0.4 percent and QE will allow the smoothing of financial tensions in the region. The steel markets and steel pricing in the EU are more stable. Europe appears to be the healthiest region at the moment, with the weaker euro protecting the market from imports and adding competitiveness to European exports.
Positive prospects in ASEAN countries
According to the IREPAS report, ASEAN countries are also expected to indicate a stronger economic performance, while many areas in the world will see reasonable levels of economic growth and global demand for long steel will grow, except in China.
Raw material prices and freight rates provide some support for margins
Raw material prices and freight rates are somehow helping to preserve margins in certain regions in the global long steel market, but the constant oversupply and new trade barriers popping up do not help the prospects for a better outlook.
Stronger presence of Chinese and Russians in export markets
Competition in the market is intense in places that used to be dominated by certain producers. Very often we see offers of Chinese and Russian origin materials in markets that used to be disputed by the South Koreans and the Turkish exporters, for example.
The strength of the US dollar continues to weigh on commodities, IREPAS warns. Most currencies have lost value against the dollar, which supports activity in the export markets. The Chinese exporters can continue to push their exports far beyond their normal markets on the back of their weaker currency.
Two main issues: increased volumes and ongoing wait for bottom price levels
There are two main issues to be dealt with in the market. The first one is pressure from increased volumes: China has introduced an approximate additional quantity of 40 million metric tons to the world market and is expected to add another 40 million metric tons this year. Additionally, Russia will also increase its exports due to the decrease in its domestic consumption. The second issue is pricing: most buyers feel the bottom has not been reached yet and it seems like it all depends on where the iron ore price may end up.
Some rebound in scrap prices and freight rates
Scrap market seems to, temporarily at least, have bounced off a bottom level during late February. Demand for scrap has picked up in all major markets and supply is tight for the coming month.
Shipping freights have strengthened rapidly from low levels during the past month amid higher bunker charges for shipowners as oil prices have moved up.
IREPAS says that, unless steel prices pick up, the temporary scrap price hikes may only be temporary for the coming month.
Instability continues to prevail in long steel market
The long steel products market is still quite unstable. Scrap pricing is picking up in US dollar terms in the export markets, but is stable in euro terms. The US domestic market still has some imbalances and a lot of imports coming in, which may weigh on pricing somewhat.
Prospects for demand in coming months
Demand for long steel products should rebound in the coming months simply because buying has been lackluster in the first quarter, IREPAS expects.