At the second session of the SteelOrbis 2021 Spring Conference & 84th IREPAS Meeting held virtually on March 15, Wilhelm Alff from Duferco and F. D. Baysal from Seba International, co-chairmen of the traders committee, answered questions during a panel discussion. Commenting on the future of Chinese steel exports, Mr. Alff said that, after China was the first to recover from the effects of Covid-19, it is now the time for consumption outside China to recover also, and, as a result, international steel prices have exceeded those in China. He added that, while China is back to pre-Covid export levels, they are still 50 percent lower compared to the levels seen in 2015-16. According to Mr. Alff, China’s steel export balance will be impacted by steel supply cuts in China due to environmental reasons. Compared to last year, he said he expects significantly lower export levels from China this year, i.e., much less than 40 million mt. The Duferco official indicated that possible cuts in China’s export tax rebate would not have such a significant impact on the international market with Chinese domestic market prices being at least $50/mt lower compared to export prices. He went on to say that production cuts will have a bigger impact on prices.
Regarding the possible extension of the EU safeguard measures, Alff said, “If the EU does not extend the safeguards, imports on a bigger scale can only start in the fourth quarter or the first quarter next year, as material has to be bought, produced and shipped. As a result, most of 2021 will be gone for the downstream industry and they will suffer more than they suffered already. So, the normalization can only start in the first quarter of 2022. If the safeguards are extended, we must expect counter-reactions from non-member states such as Turkey, Switzerland and others. However, this time, we see much stronger opposition, with EU downstream associations joining forces to fight against the extension.”
As regards trade restrictions in the US, Mr. Baysal stated that, although the general sentiment is positive, not much will change at least in the near future. He said he hoped that the infrastructure stimulus will be faster this time, benefitting steel demand, although only for US mills due to the Buy American clause. He added that all stimulus packages may bring hyperinflation, with possible new price increases in steel and other commodities.
Commenting on the EAF vs BF issue, the Seba International official said that, as far as production is concerned, both have advantages and disadvantages. He pointed out that, although the cost of production with blast furnaces is lower due to limited iron ore and transportation costs, they have disadvantages as well. On the other hand, he recalled that EAFs have the advantage of being able to stop whenever they need, even for certain hours during the day, while more supplies of scrap being available, including domestic scrap, is a big advantage for EAFs. Mr. Baysal underlined that, if scrap prices keep going up, blast furnaces will have a serious advantage over EAFs in the next six months. In his turn, Alff said EAFs will have a disadvantage from the second half and going forward as iron ore prices are coming under pressure amid increasing scrap demand from China and declining usage of blast furnaces in China.
On the topic of increased freight rates, the Seba International official said that, with vaccinations beginning, consumer demand has picked up and industrial activity has seen a rebound, contributing to limited supply of ships and containers, resulting in increases in freight rates. “Lately, container shipping costs went up even more than bulk. Shipping lines deliberately retired a certain number of containers, creating a certain shortage. It is now hard to find containers for some destinations like South America or even to the US. In addition to these problems, certain ports like those in southern California are congested: vessels and cargos wait for days to get discharged, all at the expense of traders like us,” Baysal pointed out. He added that certain countries like India are planning to manufacture more containers to resolve the shortage, and, as for port congestion, permanently moving cargos from major ports like LA to more regional ports is being considered.