IREPAS: Improved conditions finally observed in global long steel market

Conditions in the global long steel market is better as demand is steady or has edged up, according to the short-range outlook report issued by IREPAS, the global association of producers and exporters of long steel products.

The long steel products market had recently fallen to price levels that made no economic sense and doing business had become questionable. The steel world dropped off into a senseless across-the-board price erosion from October 2015 until mid-February 2016. However, IREPAS report indicates that there are now a few factors that have caused old-fashioned demand to play an important role in supporting mill-initiated price increases, in addition to the seasonal factors on the demand side.

First of all, protectionism has been the theme of the month. India introduced minimum import prices for a number of finished steel products, which gave a boost to domestic steel producers. The US and Europe have also introduced measures to protect their domestic steel sectors. These activities have added demand for ferrous scrap in multiple markets and made the market outlooks a lot more optimistic than they have been in a long time. Up to 300,000 metric tons of ferrous scrap was sold to India in the last month and a half.

Turkey has maintained steel output levels unchanged from the previous year when looking at the January figures, which is a positive factor for ferrous scrap should this trend continue. Demand for ferrous scrap has risen in the main markets during the given period and the outlook is that demand will be solid for the first and second quarters of 2016. Iron ore pricing has also been firming over the period and has provided support for steel pricing.

IREPAS noted that in Europe, on top of recent plant closures, mills have reacted and further significant production cuts are taking place, simply because it does not make any sense to sell at certain price levels. In the meantime, European mills are presenting strongly supported cases to European officials for potential antidumping actions against mills and countries that are clearly subsidized. The possibility of widespread antidumping action scares fabricators in Europe as it could potentially lead to a total closure of imports and will probably give “carte blanche” to EU mills. 

In Asia, mills came back from the Chinese New Year holidays with significant price increases that are holding. Low inventories and prospects of seasonal improvements in demand during March and April in China have led to increases in domestic and export prices. For the first time in history, the Chinese central government is announcing specific, huge plans to reduce overcapacity by more than 100 million metric tons. China has introduced measures to withdraw up to 150 million metric tons of steelmaking capacity and has set aside $23 billion to do so within the next 24 months. The January crude steel output figure according to which China’s output dropped by 7.8 percent year on year may reflect signs of action.

Freight rates continue to be on the low side which allows markets to extend their reach further than normal.

All of the above factors have helped to change market sentiment and now price increases in the majority of markets are being accepted and are propelling purchasing activity. As a result, the markets have become a lot better balanced during February than previously projected, according to IREPAS. 

However, we will have nervous demand as long as the economy across the world and in some specific countries faces uncertainties. Domestic antidumping cases and restrictions of imports (specifically in India) are causing a realignment of product flows.

Mill closures are now observed in the US. Although Turkish mills maintained their output levels unchanged, they are not working at full capacity. All this should mean that demand for scrap and iron ore should ease.

 

That said, Russia was reported to be the largest supplier of scrap to Turkey in January, a month that is usually listed as ‘frozen rivers restricting exports’. India is looking for lots of scrap going forward as there is a shortage of steel in the market. 

IREPAS report also pointed out that maintenance of lower global output levels has been contributing to a better demand-and-supply balance.  There are still movements in the direction of further supply reductions. Big names in the industry have plans to get rid of production facilities and that will probably mean more consolidation and production cuts. This is, by now, the only way to take market conditions back to reasonable and stable levels.

Everyone in the industry has learned its strengths and weaknesses, and has a better understanding of the market. However, the level of competition is still very strong in the global market. As mills have lost some of their traditional long product markets due to factors such as economic instability, China, antidumping cases, safeguard measures and increased local capacities, everyone is competing in those markets where demand is relatively high. Domestic competition in several markets is also becoming stronger as more steel remains at home. 

The markets are fluctuating and are seeking a rebalancing. Although the market outlook is satisfactory and promising at the moment, there is a certain degree of uncertainty as fundamentals have not changed and downside risks remain.