Jun 09, 2023
IREPAS: Global longs steel market squeezed by low consumption, outlook unstable

The global longs market has continued to face an imbalance of supply and demand, which results from the lack of consumption in major destinations. It is understood that demand worldwide has not yet recovered after the pandemic and that negative market factors prevail in most regions.  

Turkey continues to face a significant reduction in its longs exports, which are 60 percent down compared to the previous year, continuing their downtrend. There is an expectation for a domestic demand recovery once the earthquake-related construction projects kick in as well as the program to renovate old buildings in Istanbul. However, those developments are taking a while to implement particularly due to financial reasons, and overall the demand which may be generated is foreseen to be insufficient for the mills in view of their weak exports. Some sources consider that Turkey’s possible return to orthodox economic policies could bring some stability and visibility.  

In the EU, the longs market remains depressed due to structural reasons, affecting end-user demand. Consumption has been declining in most countries in Europe due to the slow pace of private housing and industrial building construction, while infrastructure projects are quite rare. In addition, inflation, higher interest rates and limited public spending have also hit economies and the steel sector in particular. Political tensions globally and their consequences are also affecting the potential economic recoveries of the EU economies. Overall, the EU steel sector is entering the generally quiet months of July and August when construction and normal business operations usually slow down. European steel producers are expected to undergo maintenance works during this period of time and in some cases these may take longer since mills have stocks of finished steel. In the meantime, Europe is actively trying to export its materials, but competition in the region is tough.  

The US steel market signals less demand locally compared to the traditional levels at the beginning of summer. Particularly, the PMI for manufacturing has been contracting for seven months in a row and local steel prices have softened due to slower trade and declining scrap prices. In the meantime, the ongoing banking crises and high interest rates are weighing on the new private projects, while overall new investment funding has become more expensive and difficult. Ongoing infrastructure projects allow the US mills to work with healthy margins, while the competitiveness of imports is limited except from nearby destinations.  

In the meantime, Chinese integrated steel producers are still working with acceptable margins overall but are still quite active in export destinations with competitive offers globally. There is an expectation that China may restrict its production volumes, also in the hopes of a local demand recovery, which may bring some temporary relief. In addition, there is positive sentiment in the market due to the anticipated new governmental stimulus in China.  

Along with the imbalance between global supply and demand in the longs market, protectionism continues to prevail, further restricting trade. The EU has prolonged its safeguard measures for a year and imports from certain MENA and Asian countries are to be included in the quota system. The competition in open markets is quite tough and usually is dominated by China with the MENA-based suppliers being a close second. Meanwhile, there is still a lot of focus on reducing CO2 emissions worldwide.  

As a result, the current market situation for long products globally can be described as unstable and the outlook for the next quarter is hardly promising. There are political expectations in many regions along with the approaching summer period in the EU, which are expected to result in a stagnant and anxious period in terms of both pricing and demand for finished longs. Consumption will hardly recover in the medium-term either. Although the declining trend for scrap in the US is expected to continue into July, US steel producers may give up potential margins in order to accumulate needed export volumes of longs.

Source: Steel Orbis