The general trading atmosphere has become slightly better in the global long steel market, according to the short-range outlook report issued by IREPAS, the global association of producers and exporters of long steel products. The imbalances which market players have gotten used to have diminished somewhat and therefore traditional trade routes seem to be chosen again. The strengthening of the Russian currency and the reduced influx of Chinese steel to far away markets are having an impact.
Demand picks up in Europe, interest in imports declines
The European long steel products market is stable as demand has been picking up slightly. Local European suppliers are adapting to demand, while the weakened euro and antidumping threats are reducing interest in import offers. The stable pricing policy of European suppliers has also helped to reduce such interest.
UK antidumping case hit imports of Chinese rebar
The antidumping case in the UK against imports of Chinese rebar may lead to a stoppage of new bookings as the traders involved will not be ready to run the risk involved anymore. Although the case is rather a unique one, any uncertainty over its outcome will contribute to the halting of the trade in question. The impact of the case on the market may be seen in a few weeks or in a month's time as there are still quite a lot of import orders of Chinese rebar due to arrive shortly at UK ports.
Fluctuations in euro-US dollar exchange rate give rise to uncertainty
On the other hand, doubts about real demand and correct pricing due to the fluctuation of the euro-US dollar exchange rate persist in the American market, although some markets in Central and Southern America are showing significant strength, according to the IREPAS report. With the US economy not moving as fast as originally estimated (negative GDP growth in Q1), buyers in the US market are very cautious. Although inventories are low, no one wants to increase inventories to the customary levels. The situation is even worse in energy-producing states.
On the bright side...
That said, demand in the MENA region is good and oil importing countries have been adapting reasonably well to current oil prices, without indicating lower activity so far.
Scrap supply on tight side in Europe, Turkish mills turn to Chinese billet
Supply remains tight for ferrous scrap, especially in Europe where steel mills are running well with decent order books and stable steel prices. The scrap price increases in April have put pressure on margins for EAF-based producers once again and forced them to try to ease the situation by substituting scrap purchases with billets. Turkish mills have already started buying Chinese billets as they are substantially more competitive than buying scrap or than purchasing billets from the CIS. There are massive price differences between markets which will cause some disturbances: e.g.; when ferrous scrap offers for the Turkish market have been at around $285/mt, which is equivalent to a billet price of $410/mt, CIS origin billets were priced at around $385/mt, while Chinese origin billets were at $360/mt. Subsequently, the volume of trade for Chinese billets has been significant in the Mediterranean region, but Chinese offers for finished products have seemed to vanish, IREPAS stated.
Chinese suppliers continue to export
The steel output figures in China have started to go down, though the steel export volume is still increasing at a rate of 35 percent, meaning China will be exporting approximately an extra 30 million mt this year compared to 2014, which is almost equal to 10 percent of the total seaborne steel trade. Therefore, it is not possible to talk about a balance between demand and supply yet. Chinese suppliers continue to export simply because export prices are better than domestic market prices.
Industries finally starting to adapt to overcapacities
The industries seem to finally be dealing with overcapacities through the supply chain. Scrap processors are idling unprofitable facilities in the Western world, and steelmaking capacities are being brought to a better equilibrium with demand. The adjustment will take a long time, but we at least see some signs of it happening. Global steel output also fell in April on year-on-year basis - overall and in major regions including China. This is a clear sign that the industry is adjusting supply to demand, and that decisions are being taken to make business sustainable, IREPAS noted.
Increases in prices of scrap and iron ore
The recent increases in iron ore prices back to the level of $60/mt, along with the increases in ferrous scrap prices, have brought demand back to the market. Buyers have moved from "wait and see" mode to their normal cycle of purchases, which has also helped a lot to reduce the imbalance in the supply-demand. The market has also benefited from the news that the US FED will not be hiking interest rates until September.
Stable conditions bode well for future outlook despite uncertainties
Competition is still very high in the market. On the other hand, sea freight rates continue to be very competitive. The somewhat stable conditions, i.e., in terms of pricing and demand, bode well for the industry. The main source of uncertainty remains currency fluctuation, more often due to geopolitical instability as well as to the uncertainty surrounding the second Greek bailout, and the possibility of the so-called Grexit, i.e., Greece's exit from the euro.
Further supply reductions anticipated
IREPAS concluded by saying that more supply reductions are expected to be seen in the market, while Chinese steel exports may indicate some decrease in the second half of 2015.