What's going on at the world market?

Prices for steel products have been crumbling in many parts of the world market in recent weeks. Thus, the plans for further price increases communicated by local manufacturers in midsummer with self-confidence have also received a strong damper. The mood has noticeably deteriorated. The recently presented new demand forecast of the World Steel Association Worldsteel helps to understand the current developments. It is important to keep a close eye on two countries. Turkey could develop into the new "hotspot" of the world steel market. The figures presented for China look positive at first glance, but are based more on the past than on the future. Despite all the uncertainties, the steel world currently looks better from a purchasing perspective than it did just a few weeks ago. In this article you can read how the current world market situation is to be assessed.

Unlike a few weeks ago, prices for steel products are pointing downwards in many places. Export prices for hot-rolled strip from Eastern European suppliers have fallen by around $50 per tonne since the beginning of August. There has also been a significant decline in semi-finished products. Chinese hot strip prices have lost around $20/t on the domestic market since the end of August, while export prices have fallen by around $25/t. Particularly important for the EU market are the price cuts by Turkish exporters, which have totalled around $40/t for hot-rolled strip since the beginning of September. In the case of reinforcing steel, the downward movement has been underway for some time - Turkish export prices have fallen by around $80 to $90 per tonne compared with the peak reached in March.

The recently presented new demand forecast of the World Steel Association Worldsteel helps to understand the current developments. Above all, the comparison with the previous forecast from April is revealing. The most important developments are in Turkey and China.

A drastic correction of expectations for Turkey is striking. This is not only among the top 10 in the world in terms of crude steel production, imports and exports. Turkish suppliers of hot-rolled wide strip, wire rod, reinforcing steel and beams have also risen to become the most important third-country suppliers in the EU. In addition, Turkey is the world's largest scrap importer and thus occupies a central position on the scrap market. According to the Worldsteel figures, steel consumption in Turkey will not rise by 5% this year, as forecast in April. A decline of 2.3% is now expected. For 2019 the expectation was reduced from +5.0% to +1.5%. The drastic reversal is having an effect far beyond the domestic market.

The Turkish steel industry is shaken by high inflation rates and drastically lowered growth targets of the government. Domestic demand for long products has collapsed, and capacity utilization at the steel mills has fallen to only around 72%. In September crude steel production was just under 6% lower than a year earlier. The doubling of US import duties in August noticeably intensified the negative momentum. Turkish deliveries to the important US market, which have since recovered, have virtually come to a standstill. By contrast, exports to the EU and Southeast Asia increased with the support of the drastic depreciation of the lira.

The export successes were achieved above all with price concessions. Since September, falling prices have not only been clearly felt on the EU market. Steel producers in Russia and the Ukraine, for whom Turkey is an important export destination but also a competitor in numerous sales markets, are also affected. The effect is all the stronger as demand expectations on the local markets are also not met. Worldsteel has lowered its forecast for the CIS states for 2018 from +2.3% to 1.4% and for 2019 from 1.8% to 0.9%. The increased Turkish presence is also contributing to significantly intensified price competition in the Southeast Asian market.

The Worldsteel figures for China look positive at first glance. Once again, the spring forecast proves to be too pessimistic in retrospect. Instead of stagnation (which has now been set for 2019), growth of 6.0% is now expected for 2018. This makes it easier than ever to understand why steel prices in the Middle Kingdom remained very robust over long stretches of the year despite a substantial increase in production. Worldsteel's explanations show, however, that the good figures are fed more by the past than by the future.

On the one hand, the organisation justifies the upward revision methodically. The closure of induction furnaces in the previous year and the associated shift in steel demand from the unofficial to the official part of the statistics was responsible for two thirds of the increase in demand, it is explained. The "real" increase in demand this year was 2.1% and was mainly due to a strong first half of the year. The strong global economy and government impulses for the construction sector had played a role in this. However, a slowdown is expected at the end of 2018 and in 2019. The organisation admits that the forecast for China contains risks that could have an upward or downward effect.

It is also interesting to note that the automobile market in the developed economies, which in recent years has been a pillar of steel demand, is now showing weakness. The reasons for this are low demand growth, rising fuel prices and higher interest rates.

Conclusion: At first glance, positive figures from the World Steel Association mask the weakness of important export countries. The focus is on Turkey, where a rapid change in the situation is not to be expected. As a result, price competition on the world market is likely to become more intense in the coming months than it has been over long stretches of the current year. From the EU's point of view, the forthcoming final decision on protective measures by the EU will be decisive in determining whether this competition will also be successful in this country. In China, too, it looks (once again) like a weakening - but whether the expectation will come true this time will have to be waited for. Despite all the uncertainties, the steel world currently looks better from the purchasing point of view than it did a few weeks ago.

The article was written by Andreas Schneider, StahlmarktConsult, steel market consultant from Leverkusen.

Photo: StahlmarktConsult

The guest commentary reflects the opinion of the author, not necessarily that of marketSTEEL's editorial staff.