Feb 10, 2023
IREPAS: Global longs market remains unpredictable, recession concerns may have been overstated

The global long products market and its trends are still mostly unpredictable, especially in what concerns the impact of China. However, the initially negative and cautious outlooks in some cases do not seem to be materializing. In particular, the EU seems to be managing to avoid a deeper recession and has showed some economic growth in some regions. In addition, inflation rates globally and specifically in the EU and the US seem to be slowing down now, which may boost steel market expectations, IREPAS reports.  

In January and up to the present, however, demand in the EU has been quiet following the holiday period, leading to decreasing prices. The mills have been suffering from the low construction activities in Europe, 8-10 percent inflation and increased production costs. In addition, the consequent higher mortgage interest rates and lack of workers make the situation even more unpredictable for investors. Specifically, residential and private construction may be hit as funding was reduced despite the goal to build 400,000 new apartments every year in Germany. On the contrary, industrial and public projects are still fine, though their realization is also affected by higher costs and the lack of labour, which result in certain delays.    

While end-user demand in insufficient in the EU, there is overcapacity among cut and benders, which leads to more severe pressure on mills’ prices. The actions of a few major players are bringing the market down, even in a period when mills are in a position to increase their prices, especially due to costlier scrap and overall higher production costs. Another issue is that local EU mills have to deal with increased and continuing longs imports from North Africa and Asia, whose suppliers are not in the EU quota system. However, at the same time, EU longs quotas are not being fully utilized.  

Another aspect which importers in to the EU market must face shortly is the EU’s Carbon Border Adjustment Mechanism (CBAM). Although there is still some time before it will be a real cost factor, the bureaucratic hurdles will start in October this year.   

In the North America, the market situation in rather positive and business seems stable, supported by active sales at the competitive prices and also due to the “Buy America” clause in most newly announced projects. Turkish buying before and during January helped drive scrap prices in the US while US ports remain congested, making imports even more challenging. Most infrastructure consumption in the US is to come in the second half of the year, while imports are to remain at non-threatening levels due to the high level of protectionism and support given to local American producers. The situation in Latin America is significantly affected by the political instability in the several countries of the region. Overall, fewer aggressive offers from Asia have been seen over there, while some countries are seeking to boost their exports.  

Turkish mills continue to struggle to export, facing strong competition from Egypt, Algeria, Morocco, Malaysia, Indonesia, Vietnam and even the UAE in the European and MENA markets in particular. Increased production costs, although the energy tariff policy had been eased somewhat, are still weighing on producers, making their margins smaller and prices less competitive.  

Devastating earthquakes hit southeastern Turkey and northern Syria on February 6. The fire which damaged Iskenderun port will hamper trade from the region. Following the natural disaster, market players will have to wait and see, but in the very short term mills in the Iskenderun area are not receiving energy supply for their production activities.  

Overall, the raw materials market indicated a strong upturn in January, supported by China withdrawing the remaining Covid restrictions and by better demand from some consuming regions. While the markets had been optimizing for recession with low inventories and lower production rates towards the end of last year, January saw stronger production rates as an energy-induced recession seemed to have been avoided. Energy prices fell as well as logistics costs. Buying activity was much stronger as inventories were depleted and had to be reprogrammed for stronger production rates. Both of these factors on top of decent demand levels contributed to rebounding raw material prices. Europe looks much better than previously expected. Also, energy in storage is at high levels, while the weather has been fairly mild.  

China’s return from the holiday was not as positive as initially expected, although a certain uptrend was seen. Overall, following a decline in ex-Asia longs exports to distant markets, competition and trade are once again becoming more regional.  

In general, IREPAS’ outlook for the development and the state of the global long steel segment is unpredictable and challenging, though there are several factors in favour of a market upturn, at least in the EU.  

Source: Steel Orbis