At the SteelOrbis Spring 2013 Conference & 68th IREPAS Meeting held on March 3-5 in Doha, Gianpiero Repole, commercial director of Liberty Group, assessed the current situation in the long steel markets and shared his opinions regarding the market outlook with SteelOrbis.
Liberty Group is an international steel and minerals group, operating from its three financial hubs in London, Dubai and Singapore with a network of offices spread across 30 countries around the world. The group has interests in a wide range of mining and steel production assets in Asia, the Middle East, Africa and Europe.
Liberty Group's annual turnover is $5 billion, covering over 7 million metric tons of steel and raw materials, and employing over 2,000 people globally. Total production capacity currently adds up to two million mt of liquid steel and three million mt of finished products. This is scheduled to increase to five million mt by 2015.
The steel market slowed down at the end of 2012. How do you view the market situation in early 2013?
For long steel products, the beginning of the year saw something of a rebound; January and February were quite good. We enjoyed higher prices as compared to December 2012. This, I believe, is because in December a lot of companies either focused on getting their books in order, or they were worried about a possible correction at the beginning of the New Year, and so prices were excessively low. Then, things got better in January and February amid a perceived shortage as many Saudis had not bought cargoes and as other cargoes were delayed due to ice at many ports.
I see March as a very difficult month with not so much volume, and also with not much volatility either. Making a prediction for April, scrap is going to see a greater correction than billet. Srap may move to somewhere around $380-385/mt CFR Turkey from the US and billet prices will see a correction of about $5-10/mt, because the billet price did not go up as much as scrap did and $400/mt is not really sustainable over a long period of time. The steel market is undecided. I think the Russians will panic and drop their price in order to get volumes out and the Turks will be squeezed unless the Americans relent with regard to scrap prices.
It is difficult to foresee developments after April, but 2013 will be a very difficult year, also for iron ore-based mills, since if the iron ore price stays at around $130-145/mt it is very difficult to remain competitive with billet prices at this level. As for scrap-dependent mills, when the billet price is around $540-550/mt FOB and scrap is at $390-395/mt CFR Turkey, the situation is not workable. I cannot imagine any producer cutting capacity in a significant way, though some may reduce their capacities a little here and there. So we are not going to see any major relief in the price structure. In March, though freight rates are low enough and Turkish mills were shipping to the Far East, Thailand and Indonesia, the volumes in question were not very large.
What is the role of China these days?
In long products, I would say of course that for wire rod and rebar there have been rumors of lots of sales, but most of these sales are not delivered, because prices have changed and the Chinese have decided not to deliver. Some square bar sales have been shipped, but volumes have remained limited.
In the Far East, they always live in the shadow of this Big Brother [China]. China can be very temperamental and is capable of doing anything at short notice. As a result, it is very difficult to have a long-term outlook for this market. When China sneezes, all the Far Eastern markets do not just catch a cold, they get pneumonia and die. So the situation is very precarious.
Which markets are the most active?
The Middle East is active. The Far East, the Phillipines and Indonesia are also active.
As you know, Egypt has imposed 6.8 percent duty on rebar and wire rod imports. So do you think Egypt is now out of the game?
We have to wait and see. Everything being equal, if local mills increase their domestic prices to absorb that 6.8 percent, then there will not be any difference, one may still be able to sell rebar and wire rod to Egypt. So the question is, if local mills are able to claim that margin, why would they leave that sum on the table, just to keep imports out. I cannot see this happening. So, soon enough, when local mills increase their prices, we will be able to sell to Egypt again.
And duty per se, unless it is substantial, does not stop people from importing. So you need two things to stop imports, a very high import duty and that local mills will agree to leave some of that duty advantage on the table.
So regarding Egypt, if Egyptian mills have a duty advantage of $25/mt, they will try to claim as much as they can for themselves.