According to the short-range outlook report issued by IREPAS, the global association of producers and exporters of long steel products, the uncertainty in the global long steel products market has increased dramatically. Nowadays, the most stable region is China which is set to break through one billion metric tons in 2019 should it continue at the current pace, while its exports are still muted based on strong domestic consumption. Meanwhile, in Europe and Turkey, capacity utilization is being cut due to slower orders, and in the US capacity has been added which weighs on steel pricing. The main issues affecting the market are the global production increase seen since 2016, and the unexpected drop in demand in the EU and the activity in the US under the Trump administration which has not been as good as expected.
Scrap prices currently very attractive but falling prices to eventually impact scrap generation
Considering that scrap and iron ore prices have been moving independently from each other, with iron ore reaching over $100/mt delivered to China and scrap prices decreasing, scrap prices look very attractive at current levels compared to iron ore. IREPAS stated that the problem for scrap at the moment is the construction sector in scrap-importing Turkey and also the fact that spring in the US has generated a lot of scrap flow. The falling scrap prices will eventually slow scrap generation and availability.
Global steel industry still in a better position compared to 2014 and 2015
The IREPAS report suggests that, although this year is still fairly good compared to 2014 and 2015, mills will struggle in the short term mainly because of the cost issue. The poor demand in the EU and especially in Turkey will add to this problem. Therefore, many scrap melters around the world have already decided that reducing production could be a solution, while the blast furnace-based ArcelorMittal Europe has announced cutbacks in production in order to increase prices and this seems to have worked.
US mills show signs of panic, rush to cut their prices
IREPAS noted that the reduction of the import duty on Turkish steel products and the exclusion of Canada and Mexico from the Section 232 duties - although President Trump is threatening Mexico with further tariffs related to immigration issues - caused panic in the US market which has been enjoying margins over 25 percent. “The fear of losing the market to imports has convinced domestic mills to race to drop their prices, sometimes without even being asked,” IREPAS pointed out. In addition, the softening of ferrous scrap prices has created expectations for further decreases and has influenced buyers to delay their new purchases.
EU quotas fail to provide expected benefit for domestic mills
In Europe, although the quota system is helping to keep prices stable, safeguard measures failed to provide the expected relief for EU mills. With cargoes arriving in February and April filling the stockyards, mills had to reduce their prices to receive new orders. Now, the EU expects the next wave of imports to arrive in July, which is likely to cover most of the demand for the summer period. On the other hand, European mills are finding it difficult to export steel as prices are low in other markets. IREPAS said that the current alternatives are either to push more steel into the domestic and regional markets, which will put downward pressure on prices, or to stop production.
Protectionism is the main contributor to the current instability
Steel producers are less willing to lower their prices as the pressure from competition does not seem to be strong and has been diminishing due to political protection in general. IREPAS added that trade barriers and the tariff picture contribute to the current instability more than demand, supply and competition.
Outlook for market characterized by greater unpredictability
Under the current circumstances, the market can be described as fluctuating and unstable. The outlook is very much uncertain, less predictable and weaker, IREPAS reiterated.
Some stabilization expected over the summer months
Scrap accumulation is expected to slow down over the summer months in part due to lower prices and in part due to industrial vacation periods. Demand and supply will then become better balanced and stabilize pricing, according to the IREPAS report.