According to the market outlook released by IREPAS, the global association of producers and exporters of long steel products, in November this year long steel mills worldwide were in general bothered by lack of demand, the rise in scrap prices and the subsequent lack of conversion margins, and therefore continued to reduce production and cut supply into the market. At the same time, demand in the market has declined mostly for seasonal reasons despite the positive sentiment created by the increases in raw material prices.
IREPAS said that the raw material price increases strongly squeezed mills' margins in the EU market as the supply/demand imbalance got worse. Producers reacted by announcing general price increases for all long steel products, of up to €100/mt, which they are already applying.
Competition levels in the market are as high as they have been in the last six months, especially in the eastern markets and the CIS, as stated by IREPAS. The steel mills are trying to move deeper into individual business areas to cut out intermediaries, while large trading houses are consolidating their business activities.
Existing demand in the North American market has been offering some relief for market players even though it has slowed down a little since the US presidential elections. The outlook for African and Asian markets appears to be reasonably promising in 2013. However, IREPAS said, the mills in the EU will keep adjusting volumes in line with demand levels and their price policies will have to focus on recovering their profitability. Unfortunately, the political situation is still affecting steel consumption and demand in the Middle East.
On the raw materials side, iron ore prices are still at around $120/mt and ferrous scrap supply will continue to be tight.
According to IREPAS, on a positive note, ocean freight levels will remain low and this will help international trading activities and suppliers who are looking for new destinations for their products. Nevertheless, the long steel market in general is still quite unstable.
In December, the long steel market, particularly in the West, is expected to achieve a better supply and demand balance following ongoing production cuts, but there is still a big question mark over the situation in the East.
The strengthening of the euro makes imports of long products into the EU market more attractive, while it makes scrap exports from the EU less competitive. In the US, the market is focused on the year-end fiscal cliff and is hoping that the two sides will agree on a solution. IREPAS stated that availability of scrap has been declining not only in continental Europe but also in North America amid the winter weather and the coming holiday period, and therefore supply is expected to be tight.
Buying activity in the long steel market in December should be slightly better due to the combination of existing low inventories and the approach of the New Year, but questions will probably still surround the overall market situation until after the lunar New Year holidays.