IREPAS: Uncertainty still prevails in global longs market, while BOF production faces severe pressure  

Monday, 08 July 2019 11:45:26 (GMT+3)   |   Istanbul

According to the short-range outlook issued by IREPAS, the global association of producers and exporters of long steel products, the outlook for the global long steel products market differs for the scrap industry, the steel producing industry and for steel consumers. The market can be described as generally unstable as there is still a lot of uncertainty and even a tweet may turn a lot of things upside down. Particularly BOF-based producers are going through a tough period, especially due to increasing raw material costs. There have already been closures and threats of potential closures of several BOFs in Brazil, the US, Scotland, China, and perhaps even elsewhere. A similar tough period was observed back in 2016, but it was not long-lasting. It seems as if the only way out is to slow down and stop inefficient facilities, IREPAS said.

Fundamentals unlikely to support higher scrap prices, supply and demand balanced for billet

Scrap prices are also picking up, but are not expected to stay where they are now since the fundamentals do not support higher levels. IREPAS stated that pig iron prices have seen a downward adjustment to match low residual scrap, which has not made any real gains. There is an excess supply of slabs, while for billets supply and demand are balanced.

Long steel supplies in US increases amid unchanged demand

According to the IREPAS report, demand in the US market for long steel products has not changed, but supply, especially from domestic mills, seems to be increasing and putting pressure on prices. Domestic mills face very little pressure from imports, but, ironically, they are racing against each other to offer deals to even small buyers. On the other hand, particularly, because of the closure of US Steel’s blast furnace-based mills, US mills are trying to increase their HRC prices, which are unusually low and lower than in many other markets nowadays. This situation is also proving that protectionism is not the solution and there are already other ways and means to fight unfair trade practices.

Canada soon to be number one exporter to US, Mexico more cautious

Canadian mills are now offering to the US with zero duty and, as the IREPAS report suggests, they will soon gain their number one position as the largest exporter to the US. Meanwhile, Mexico has made inroads in the US market, but is cautious as it seeks to avoid further antidumping action on its main products.

Very low demand in South America due to lack of infrastructure investment

As for the South American market, the situation is pretty much the same as last month. There was a small growth in reinforcing bar consumption in the first five months of this year, but general demand is still very low due to the lack of infrastructure investment. The rebar price level is low, considering that the iron ore price has hit $117/mt CFR. Therefore, integrated mills have no margin to export and their only business opportunities are within Latin America, where the freight cost is less expensive.

Turkish mills’ export opportunities are limited

Since the EU quotas are almost used up for long steel product exports from Turkey, there will not be any more Turkish sales to the EU market for a year. As a result, the supply-and-demand balance will not be in better shape than it is today for the Turkish mills.

European mills protect their margins, though EUROFER not happy

The EU market is very quiet, which is very unusual for this time of the year. Although EU mills have been trying to move their prices upwards but fail, they still have very good profit margins as they have not been forced to reduce prices in line with developments in the scrap market. However, EUROFER is complaining that the EU steel industry is suffering and is thus asking for further measures, which will probably make things even worse for the market. Under such circumstances, it will be very difficult to commit to any international transactions. Subsequently, manufacturing in Europe will even be harder due ot the lack of visibility, which eventually will cause considerable damage to downstream industry. Such actions by the EU have already started eroding common values, i.e., open markets, free trade, etc. EU member states may soon start accusing each other due to the inevitable consequences, IREPAS suggests.

No resolution in sight in US disputes with China and Iran

According to IREPAS, there is still no resolution to the US-China trade war. China is not giving in and the US has no reason to do so. Iran as an important steel producer and there is also no resolution in sight in its case. While there has been some positive sentiment after the G20 summit in Osaka, there is not much confidence because of past behaviors and sudden changes in the political arena.

Iron ore prices soar 18 percent in June, causing cuts in BOF outputs, shift to EAFs

Iron ore pricing soared by 18 percent in June on the back of strong demand and supply disruptions. Some idling of blast furnace production will mean production shifting toward scrap-based electric arc furnaces, which are extending their order books. The production cuts announced by many BOFs in the market will help bring balance to supply and demand.

Exports remain under control in China which shows increased demand for billet imports

Internal consumption in China has so far continued to keep exports under control. Any real or prolonged downturn in steel consumption in China will certainly change the direction of the iron ore market trend. Demand for billet imports is increasing in the Chinese market due to the high domestic production costs. On the contrary, China is becoming a destination for semi-finished products. Going forward, we can expect continued investment in the electric arc furnace route in China. 

Intense competition within regions, few markets left for exporters

Competition in regional markets is intense, but there is much less competition from deep sea sources due to protectionism. The lack of consumption pushes competition higher. There are very few markets left for exporters.

Demand in Western markets foreseen to remain slow in short term

According to IREPAS, demand in Western markets is expected to stay slow for the short term, but the markets may be expected to firm up during the last quarter of this year due to production costs and the anticipated slowdown in production.

Summer demand for scrap expected to be decent, with cheap prices compared to iron ore

As for raw materials, the summer will likely see some decent demand for scrap, which will mean stable pricing. The iron ore to scrap ratio is at a low point. In this respect, scrap looks cheap. The summer period in the European market will draw down scrap availability.

Foggy outlook for next quarter in an unstable market

The activity in the global long steel products market is expected to be slower than usual during the summer. In general, the market is unstable and the outlook for the next quarter is foggy, according to the IREPAS report.

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