Jun 15, 2020
GLOBAL LONGS EXPORT MARKETS SHRINK FURTHER AMID PROTECTIONISM

As expected, things are getting more difficult for exporters in the global steel market. The EU opened fire with an antidumping investigation on HRC imports from Turkey, with Turkey firing back with duties on steel products from the EU. Canada started a similar investigation against imports of heavy plates from several countries, while Egypt has been working on a 10 percent duty. Accordingly, the world market is shrinking further and Russian mills are taking the lead and dominating the market. It will be a real game of survival for a while and the cost of production is the key.

Global longs consumption still very uncertain, prices move up especially in Asia

While prices are heading up (particularly in Asia), consumption in the global long steel products market seems very uncertain. Demand for physical steel is held up by the optimism in the futures market. This is somewhat worrying for the supply and demand situation in the market if the support from the futures market were to weaken. On the bright side, despite the impact of the Covid-19 pandemic the World Steel Association (worldsteel) in its recent report still foresees an increase in steel demand in China in the current year, predicting a rise of one percent from 2019 to 916.5 million mt. This helps restrict the fall in global steel demand in 2020 to an anticipated drop of 6.4 percent, whereas demand in the rest of the world excluding China is foreseen to contract by 14.2 percent compared to 2019. Meanwhile, market players are hoping that June and July will be months of stabilization before a recovery later in the year.

Brazilian steel industry faces serious demand crisis

Brazilian crude steel production continued to fall in April amid the ongoing Covid-19 pandemic. Its crude and rolled steel outputs in the given month fell by 39 percent and 36 percent, respectively, while its semis output declined by 24 percent, all year on year, according to the Brazilian Institute of Steel (IABr). Domestic steel sales in April decreased by 36 percent year on year, in line with apparent consumption of steel products which collapsed by 35 percent. Due to the adverse conditions in the international market, Brazilian steel exports fell by 17 percent year on year. These data demonstrate the seriousness of the demand crisis that the Brazilian steel industry is facing, which led it to operate with only 42.2 percent of its installed capacity in April. As a result, in the first four months of the year Brazil’s crude steel production fell by 14 percent year on year to 10 million mt. The output of finished steel products contracted by nine percent  year on year to 7.1 million mt due to the decrease in apparent consumption in the period under review (down nine percent to 6.2 million mt). In the January-April period, Brazil’s steel imports contracted by 18 percent to 705,000 mt, while its steel exports fell by five percent year on year to 4.1 million mt.

Mills in EU struggle, buyers only order what they need and wait for lower prices

The construction business in the EU has been hit harder than expected by the Covid-19 crisis. New building permits in May were substantially lower than in March and April and many projects have either been put on hold or stopped. The public sector still has big infrastructure projects in the pipeline. However, since the Covid-19 crisis has kept everybody at home for almost three months, these projects have been delayed significantly. Cut-and-benders are trying to grab any order available as they start to believe the next one will be at a lower price anyhow. EU-based mills are selling hand to mouth as buyers will only order what they need and wait for prices to fall further. Italian mills are selling at almost any price to collect cash, and this has pulled the market downwards. The same goes in Poland where mills are pushing clients into placing orders by lowering their prices almost daily. At the same time, scrap prices have increased, which is a toxic combination for cut-and-benders and the mills. The biggest threat for importers is the ongoing discussions in Brussels on the reevaluation of safeguard measures. The EU is once again changing  the rules in the middle of the game under pressure from EUROFER.

Demand recovers in ferrous scrap market

On the other hand, demand in the ferrous scrap market has recovered and the raw material inventories that were depleted have had to be rebuilt as the markets have been opening up after the lockdowns. Activity has been general and has taken the markets by surprise.

Stimulus packages and normalization procedures provide a boost

Stimulus packages around the world are acting as fuel. There are concerted efforts to avoid a U- or L-shaped economic rebound, with a V-shaped rebound being what the financial markets are seeking. Finally, normalization procedures have been initiated in many countries. The automotive sector is back in business in various countries, e.g., in the US, EU and Turkey.

China’s recovery a very important factor

China has acted as a powerhouse in the past month for commodities. Industrial activity in the country returned to normal in May. The quick return of Chinese companies to the market and China becoming an importer have been very positive factors.

Japanese production cut is good news for other exporting countries

Japanese mills have announced a production cut of approximately 20 million mt, which of course is not a positive development for them but does represent good news for other exporters in the global market.

Difficult to talk about the existence of a global market nowadays

We cannot really talk about the existence of a global market nowadays. There will be 100 percent self-sufficiency in Asia in the medium term and then exporters will be wandering in search of the next market. Every producer outside of China is struggling with insufficient volumes and, under such circumstances, competition can come from anywhere at any time. The mills in many countries have to follow what the Russian mills are offering in the market and then to decide whether they can compete.

Future remains very much uncertain but some signs of optimism seen

The current status of the market is clearly unstable. The markets are still assessing the damages from the Covid-19 pandemic and the future remains very much uncertain. But at least investors and industries are showing optimism.

Source: Irepas