IREPAS Provides Short Range Outlook for Long Products Markets
02/11/2014 - In its short range outlook for February 2014, IREPAS says difficulties in emerging markets are adversely impacting long steel business.
The situation in the global long steel products market has become a little bit more complicated than expected as a result of difficulties in emerging markets, and recent developments particularly in Turkey, IREPAS reports.
The annualized crude steel production of the world steel industry decreased to 1.521 billion metric tons as average daily rate of production decreased by 2.5% in December compared to the previous month. The capacity utilization rate of the industry turned out to be 74.2%. According to World Steel Association (worldsteel), the 65 countries reporting actual results produced 1.582 billion metric tons of crude steel in 2013 representing a 3.5% increase year on year. Worldsteel estimates total global production in 2013, including non-reporting countries as 1.607 billion metric tons. Both totals constitute new records! Worldsteel also announced that the crude steel production in 2013 turned out to be 67 million metric tons more than 2012 according to the reports of those 65 countries. China is responsible of 98.7% of such increase. 49 million metric tons of more iron have been produced in 2013 versus 2012, with China responsible for 99.8% of that increase. And finally the apparent consumption of ferrous scrap is calculated as 18 million metric tons more than that of 2012 with China responsible of 95.8% of the increase.
Steel production and therefore raw material consumption were at record rates. However, market factors quickly turned negative by mid-January this year as political events in Turkey escalated to a level capable of adversely impacting the Turkish economy and steel industry, especially in combination with the already difficult global steel market conditions, which were further exacerbated by high-costs and shortages of energy. Other factors including a rapid drop in iron ore fines prices started to emerge in mid-December, with prices now at their lowest level in six months. This, combined with falling coking coal prices, pushed the estimated cost of blast furnace liquid iron (BFI) in Asia -based on trader opinions- down from around $390/mt in mid-December, with a decrease of $27/metric ton witnessed up until the beginning of February. Although the yen has recovered a little in recent days, many currencies have weakened against the US dollar, with the yen weakened significantly, and this lowered the cost of Japanese scrap imported in US dollars to levels buyers and sellers were unable to resist. Finally, bulk freight rates in both the Atlantic and Pacific began to decline and have fallen by about 29% since mid-December.
2013 reportedly saw the greatest number (27) of steel trade cases filed worldwide since 1999 (34). Yet, more steelmaking capacity is coming on line or is being planned. It looks like we are moving further into the shakeout required to eventually restore industry health for those that survive. Conditions are unlikely to see a longer term positive change until excess capacity in steel, mining, scrap processing, and shipping are utilized or rationalized.
Even though expectations for demand are still positive in certain key markets, the recent currency turmoil, especially in Turkey, has created uncertainty and has caused a slowdown in purchasing activity during the last couple of weeks. The situation will become clearer after the Chinese New Year holiday, but demand is very slow for the time being due to the negative developments in emerging markets.
Scrap prices are also on a weakening trend and such pressure does not help long product prices. A large portion of the worldwide steel producers are operating with negative cash flow and at the same time having an increase in borrowing costs. The issue of the credit worthiness of steel buyers presents tough decisions for steel suppliers. At the same time, however, competition in the marketplace is still extremely high.
Lower raw material prices are a necessary adjustment in a difficult steel market and are beginning to show results as more steelmakers consider restocking.
Outlook for February
The trade cases in certain countries will have a positive impact on their respective domestic markets. For instance, the demand level for reinforcing bars is still good in the US; however, there are now even more offers chasing the same volume of demand. The antidumping action by US mills against wire rod imports from China constitutes a new battleground and the Chinese wire rod exports will have to find a new home.
In fact, more steel was consumed in 2013 than in 2012. The strengthening of major economies like the U.S., Japan, UK and the EU should push steel demand up further. That said, some more time may be needed for stabilization.
The Iranian market has so far not lived up to expectations that it would become a driver of demand, but it may still play a big role this year. We may also see some improvements in the Asian market eventually.
The annualized crude steel production of the world steel industry decreased to 1.521 billion metric tons as average daily rate of production decreased by 2.5% in December compared to the previous month. The capacity utilization rate of the industry turned out to be 74.2%. According to World Steel Association (worldsteel), the 65 countries reporting actual results produced 1.582 billion metric tons of crude steel in 2013 representing a 3.5% increase year on year. Worldsteel estimates total global production in 2013, including non-reporting countries as 1.607 billion metric tons. Both totals constitute new records! Worldsteel also announced that the crude steel production in 2013 turned out to be 67 million metric tons more than 2012 according to the reports of those 65 countries. China is responsible of 98.7% of such increase. 49 million metric tons of more iron have been produced in 2013 versus 2012, with China responsible for 99.8% of that increase. And finally the apparent consumption of ferrous scrap is calculated as 18 million metric tons more than that of 2012 with China responsible of 95.8% of the increase.
Steel production and therefore raw material consumption were at record rates. However, market factors quickly turned negative by mid-January this year as political events in Turkey escalated to a level capable of adversely impacting the Turkish economy and steel industry, especially in combination with the already difficult global steel market conditions, which were further exacerbated by high-costs and shortages of energy. Other factors including a rapid drop in iron ore fines prices started to emerge in mid-December, with prices now at their lowest level in six months. This, combined with falling coking coal prices, pushed the estimated cost of blast furnace liquid iron (BFI) in Asia -based on trader opinions- down from around $390/mt in mid-December, with a decrease of $27/metric ton witnessed up until the beginning of February. Although the yen has recovered a little in recent days, many currencies have weakened against the US dollar, with the yen weakened significantly, and this lowered the cost of Japanese scrap imported in US dollars to levels buyers and sellers were unable to resist. Finally, bulk freight rates in both the Atlantic and Pacific began to decline and have fallen by about 29% since mid-December.
2013 reportedly saw the greatest number (27) of steel trade cases filed worldwide since 1999 (34). Yet, more steelmaking capacity is coming on line or is being planned. It looks like we are moving further into the shakeout required to eventually restore industry health for those that survive. Conditions are unlikely to see a longer term positive change until excess capacity in steel, mining, scrap processing, and shipping are utilized or rationalized.
Even though expectations for demand are still positive in certain key markets, the recent currency turmoil, especially in Turkey, has created uncertainty and has caused a slowdown in purchasing activity during the last couple of weeks. The situation will become clearer after the Chinese New Year holiday, but demand is very slow for the time being due to the negative developments in emerging markets.
Scrap prices are also on a weakening trend and such pressure does not help long product prices. A large portion of the worldwide steel producers are operating with negative cash flow and at the same time having an increase in borrowing costs. The issue of the credit worthiness of steel buyers presents tough decisions for steel suppliers. At the same time, however, competition in the marketplace is still extremely high.
Lower raw material prices are a necessary adjustment in a difficult steel market and are beginning to show results as more steelmakers consider restocking.
Outlook for February
The trade cases in certain countries will have a positive impact on their respective domestic markets. For instance, the demand level for reinforcing bars is still good in the US; however, there are now even more offers chasing the same volume of demand. The antidumping action by US mills against wire rod imports from China constitutes a new battleground and the Chinese wire rod exports will have to find a new home.
In fact, more steel was consumed in 2013 than in 2012. The strengthening of major economies like the U.S., Japan, UK and the EU should push steel demand up further. That said, some more time may be needed for stabilization.
The Iranian market has so far not lived up to expectations that it would become a driver of demand, but it may still play a big role this year. We may also see some improvements in the Asian market eventually.
IREPAS was started in the early 1980s as a result of a meeting between CELSA and Gerdau. Ricardo Hugas created IREPAS to develop understanding between producers, traders and consumers of rebar around the world. Today, IREPAS unites producers, traders, raw material suppliers as well as end users and professionals from the shipping, finance and inspection industries.
