IREPAS: Increased stability and reduced price spreads in global long steel market

The global long steel products market has seen some stability over the last few weeks as the increase in Chinese origin offer prices halted the weakening of global long product prices, according to the short-range outlook report issued by IREPAS, the global association of producers and exporters of long steel products. The spread between Chinese and Turkish origin reinforcing bar prices has narrowed significantly and is becoming even narrower. Likewise, the price spread between the most expensive FOB or ex-works reinforcing bar price in the market and the cheapest available is also getting smaller.  

That said, there is not much change in terms of supply and demand in the market. Demand may have been reduced slightly due to the higher level of uncertainty in the marketplace. While producers are still trying to protect their share in their traditional markets, customers in many major markets, like the Americas, the EU or the Middle East, are still very cautious about placing orders, the IREPAS report said. Local producers are keeping the pressure on buyers in these markets by making quick changes in their pricing. 

The saga of “billet to roll or scrap to melt” continues on one side for the scrap-based steel producers, and pressure from low-cost BOF-produced steel on the other. Under such circumstances, Turkey had four different countries of origin (Russia, Ukraine, China and Iran) which supplied more than 100,000 metric tons of billet in July. 

According to IREPAS, neither China’s steel output nor the volumes of steel exports from China have actually slowed down. The ability to export is being squeezed in general in the global market after all the protectionist measures introduced which have impacted not only Chinese and Russian exports but all other exports as well. Some producers will suffer and some will gain new opportunities. As such, the situation will lead to a structural change in the global marketplace.

Since the Russian suppliers still have the greatest interest in exports and the lowest costs in the market, all the others will have to adapt by lowering their prices. It seems that the Chinese suppliers have a reduced appetite for competition with Russian prices in the market, IREPAS noted. The recent increase in Chinese origin offer prices has even led to a positive sentiment in some markets that certain upside adjustments, particularly in ferrous scrap quotations, might happen which would force all prices up. 

The IREPAS report predicted that stretched-out order books at steelmakers have meant that scrap demand is solid for the coming month after the summer holidays. The strengthened US dollar has been putting pressure on dollar pricing and may continue to do so as the US Federal Reserve continues to prepare the markets for another interest rate hike later this year. 

The industry needs to appear more attractive to investors and lenders everywhere, and so actions to accommodate capacity to real demand are still happening and will continue in the future. The spike in March and April has not resulted in a jump in the production figures of Western steel producers. Producers were extremely careful about keeping supply at a certain level. They still maintain a similar position nowadays and subsequently there is no pressure on prices in the Western world. Obviously, as more Chinese origin steel stays at home and in Asia, Chinese prices for reinforcing bars and wire rods have a lesser influence on American, European and most MENA markets. Another positive for the market is that demand in Russia also seems to be improving, the IREPAS report indicated. 

However, competition in the global market is still at high levels due to limited markets and pressure from local producers. Canada has become another market closed to some imports for a while. The balancing out of markets will mean that nearby markets will become increasingly competitive, according to IREPAS. The Russian and Asian mills are looking for homologations in order to find new markets, which will increase the pressure on established suppliers.

IREPAS recalled that the last quarter of the year is always very challenging. But the market is in a better position at the start of the last quarter this year compared to previous years. There is a possibility of winter restocking following the slow buying activity during Ramadan and the summer holidays and due to the Brexit vote. Of course, the situation is still fragile, always depending on the Chinese movements, IREPAS warned. There could be downward pressure on prices depending on supply. Right now, the prevailing sentiment is that the market will see some further stability in the next few weeks.