Short-term Outlook for Global Steel Sector
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The global steel market is depressed at the moment as circumstances are becoming more difficult. It has become a buyer's market and is difficult to secure orders at reasonable prices. The problem lies more on the demand side rather than with supply, and, therefore, it might take longer for a balance to be reached.
Steel prices to plunge amid falling raw material prices
The key raw material prices that includes iron ore and coking coal have dropped by 25% and 10% respectively in time span of 30 days. Iron ore has collapsed from the recent highs of USD 120/MT at the end of July to levels of around USD 85/MT. The cost of steel production at BOF mills has come down to around USD 240/MT level. Also It is difficult to increase steel prices because there is insufficient growth in demand for steel and the new iron ore and coking coal prices are allowing steel mills to offer steel at USD 400/MT without incurring losses.
Trade protectionism has helped U.S. steel sector to stabilize
U.S.'s steel sector is stable at present. The domestic steel mills that are enjoying trade protectionism of 25% against imports are not keeping their domestic prices very high and are adjusting to keep them at par with the imported material, thus keep imports at bay. However, the trend of trade restrictions initiated by U.S. last year have gripped various other countries also despite negative or positive impact of the same being assessed.
Gloomy days for EU steel sector
Production cuts have become more pronounced over the past month as industry and construction in Europe is not ramping up to the same extent as last year. Currencies have been moving a lot in spite of geopolitics, central bank monetary easing and Brexit.
With the quota allowed for imports exhausted and given the lack of a significant threat to EU mills from other third countries, EU prices should have increased after the summer holidays. However, the recent downward trend of ferrous scrap and iron ore prices is putting a lot of pressure on the EU steel markets and it is difficult to expect any real improvements in the prices until next year.
China has strong domestic consumption; trade war full-fledged impact yet to be seen
According to the reports, the country's steel exports have fallen thus indicating that the domestic steel consumption in China is at levels higher despite the escalating trade war, which is something of a relief. Low interest rates will surely have a positive impact on the market, but the fact that the trade dispute escalation has not yet become a full-fledged trade war is probably the only positive factor for the market at the moment. However, slowly but surely, all countries are creating their own defenses under safeguard protection and are going in that direction which may effect the Chinese steel output in the coming months ahead.
Turkish exporters continue to struggle
The EU market will be entirely closed to Turkish exports until next April which means that exports from Turkey will inevitably slow down. Turkish exports to the U.S. market have resumed for just a couple of players but sales are still deemed risky due to the difficulties in predicting the next move on the US side. The top three markets for Turkish rebar exports have been Yemen, Israel and Singapore, which do not provide security and confidence for the long term.
Any positive improvement this year unlikely
The current status of the market can be described as fluctuating and unstable. Ferrous scrap and iron ore prices are both expected to follow a weakening trend. Amid tepid steel demand and closed economies, many major global steel producers have already started slowing down their operations, extending maintenance and idling facilities. However, inventory levels would also need to come down in order to see some stability. Accordingly, the positive expectations for the last quarter (Oct-Dec) have been postponed to the first quarter of next year.
