Supply shortages coupled with decent demand remain the key driving forces behind the currently booming global long product market. Based on the experience of similar price booms seen in the global market in 1987 and 2008, IREPAS, the global association of longs producers and exporters, has been trying to evaluate which scenario the current situation could end up in.
While the uptrend of 2008 resulted in sharply falling prices, this year a downward correction is expected in the last quarter of the year, IREPAS noted, as it views the outlook to be satisfactory if not outstanding.
Buyers in the EU seem to have no other options but to pay new higher prices, while offers have reached a 13-year high and are not bound to scrap but to demand developments. Since import options are limited, European buyers have been under pressure to find material, while the mills have long lead times and stock volumes are very much limited. The safeguard measures have had a negative effect on supply since the share of imports has declined to only five percent.
The supply problem also persists in the US where demand is strong and the mills are sold out for two months ahead. Prices are as high as ever and the positive trend is likely to continue in the third quarter and, moreover, may be also seen throughout 2021. Imports are considered to be less advantageous since buyers are not in a position to pay these high prices for three to six months forward. In addition, sea freight rates are high, which also plays in favor of the local American mills.
China’s almost complete absence from exports is considered a big supportive factor for the global longs market, following the tax rebate cancellation and capacity reductions. This is taken as a positive sign for the price situation since the price decrease expected by the end of the year will most probably be much softer with a passive China in terms of exports.
Scrap demand globally keeps increasing due to strengthening steel production worldwide. Moreover, the supply chains remain extremely tight as inventories are low, while longs demand in most regions is high. Mills being well-booked for the coming months in terms of finished steel is taken as a supportive factor in favor of strong demand and scrap pricing in the next quarter. Freight rates also remain high due to the lively global steel demand and hence active shipping operations. Further increases in freight rates are anticipated as container ports have become congested.
Following the new Covid-19 waves and lockdowns, finally there are some hopes emerging for the relative normalization of daily and business life. There are very positive outlooks for vaccinations in the US and the EU along with the new infrastructure investments announced in these countries. Demand inRussia’s local market is also strong.
As a result, the IREPAS outlook for the third quarter is generally stable with some short-term fluctuations possible. Since the markets continue to show regionalization, competition will be seen in the Asian region, but overall it seems the market will remain “perfect to proceed.”