Oversupply has been evident in the global long steel market from September up to the end of November, slowing down demand, putting pressure on the market and pushing prices downwards, according to the short-range outlook report issued by IREPAS, the global association of producers and exporters of long steel products. However, outputs are being reduced in certain areas and demand in the global long steel products market is now at reasonable levels although purchasing processes in general have been delayed or even fragmented due to the general price downtrend. Buyers are keeping a very close eye on price changes in the market and try to book at the most favorable levels they can, but buying activity is consistent, IREPAS noted.
Bright spots for demand
Demand for long steel products in central and northern Europe can be described as reasonably healthy. Demand in southwestern European markets, including Greece, is improving though still at very low levels. The same can be said for eastern Europe too, except for Ukraine.
According to IREPAS, demand in the North American long steel products market is showing strength. The US domestic market has been stable throughout the fall and remains in good shape, but there is also serious pressure on prices to decrease soon. In other areas, some countries dependent on income from raw materials and commodities, like Brazil, Chile and Algeria, among others, are seeing a slowdown in activity which affects demand for steel products negatively. Other markets like the GCC countries seem to be holding up well.
Prospects remain on bearish side for scrap
After 13 weeks of negative price development, the scrap market in Turkey has leveled off at least for the time being due to tightness in the supply chain. The US and European demand has been fairly steady and so availability of seaborne scrap has diminished. Lead times are short, implying that, when sentiment shifts direction, corrections and rebounds can be quick. The overall outlook for scrap remains fairly bearish as prices for the alternative to scrap, i.e., iron ore, remain weak, and Chinese domestic demand for steel is not sufficient to absorb ore production, the IREPAS report indicated.
The prolonged period of sliding prices has meant that many in the scrap community have taken a step back so as to not get damaged in the rout. This has been especially noticeable on the industrial level where competition is most fierce. No supplier wants to be sitting with expensive material in a falling market.
Competition still extremely strong
IREPAS pointed out that competition in the global long steel market is still extremely strong. New adjusted values in currencies and prices of scrap and iron ore continuously change the competitiveness of different players, in different products and markets. CIS, Turkish and Chinese suppliers have been involved in intense competition to attract the orders in the market. Turkish suppliers are now withdrawing from this club.
The dip in the oil price has contributed to the collapse of the Russian rouble, which likely will make Russian exporters competitive on scrap and billets. As prices fell in the steel market, business activity continued at lower levels. Lower oil prices also keep bunker prices low and logistics workable, enabling more business to be concluded.
A new era dominated by China?
A new era in which China will be a major supplier has started already. In this era, two different groups of markets are expected to be seen. The first of these will be the China-dominated markets and the other will be the protected markets.
General rebalancing of commodity prices
Multiple commodities are currently being rebalanced at new price levels. Iron ore, copper, oil, ferrous scrap as well as products derived thereof including but not limited to basic pig iron, billet, slab, long steel products and flat rolled steel products. Currency trade wars seem to be commencing and commodities are taking a beating as a result. The slower pace of China's growth is sinking in and governments and central banks are trying to balance this with weaker currencies. Under such circumstances, steel producers are now focusing on their purchasing costs rather than on production costs, IREPAS said.
Approaching holiday period may offer some respite from turbulence
The global long steel market has been very turbulent. It seems as if the price downtrend has stopped in the last few days and, as a result, buying decisions may be moved forward. However, a holiday lull for Christmas and the New Year appears to be in the offing. We may obtain a pause and gain some stability for a few weeks.
Healthy outlook for coming quarter despite rebalancings
According to the IREPAS report, the rebalancing in the market has been necessary and will likely have some echoes but in general the market for the coming quarter will be healthy.