IREPAS: Steel producers may recover quicker than demand, outlook unstable

IREPAS: Steel producers may recover quicker than demand, outlook unstable

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Long steel business remains challenging worldwide in terms of production and sales as the economic situation and consumption in many countries have been heavily affected by the Covid-19 pandemic and protectionist measures. More negative influence may be seen in the next quarter, but also some gradual revival may be observed in some countries, which would have a positive effect on business overall, according to the monthly report issued by IREPAS, the global association of producers and exporters of long steel products.

The situation is getting worse in the US market. Construction was slow in April and only a minor improvement is expected in May, with states in the northeast being mostly closed for business. Oil prices have sunk to a historical low, resulting in a seriously negative outlook for steel pipe and oil tool manufacturing industries. A consequent negative impact is expected on commercial and housing construction and even on auto manufacturing in the oil-producing states and in the US overall. The EU is also likely to experience a depression after the lockdown mainly due to financial difficulties. The situation in Brazil has worsened, specifically as the US and the EU which are key sales outlets are in the middle of the crisis themselves. Local Brazilian mills are operating at 41 percent capacity, according to IABR, while a 50 percent drop in sales is expected in April.

The negative impact of the lockdowns on the overall economy, which is likely to continue in June, is foreseen to have a reflection in steel production in the form of further production cuts in May. In April, many mills were able to avoid production cuts thanks to orders received in February, IREPAS said. Overall longs products are performing better than flat products, though oversupply is the problem for the time being. It is observed that scrap-based mills have fared better in the crisis as their key consumer is construction, while blast furnace-based facilities have suffered from the loss of automotive sector orders in the US and the EU specifically. In April, low scrap availability and the backlog of steel orders resulted in some short-term uptrend in prices.

From the global point of view, there is rather intense competition between sellers since the buying regions are so limited. China remains the key market for semi-finished sales these days, providing support for large tonnage sales. In the meantime, internal competition has been weakening as in the case of the EU where borders are closed and transportation costs have surged. In addition, the protectionism measures, imposed globally in the previous years, prevent excessive imports anyway. IREPAS does not exclude a more intensive protectionism trend, in particular as the EC is considering lower import quotas. Since every country will be seeking to support domestic industry, export-oriented supplies are to come under more pressure, especially in the markets dominated by Russian suppliers who have low production costs. Accordingly, IREPAS expects overcapacity to probably become more of a domestic rather than a global issue.

Despite the generally gloomy picture, there are some signs that the markets could reopen sooner than expected, specifically if one looks at the Asian markets and China in particular. Governments are expected to focus harder on stimulating their economies. In the EU, construction is considered as a target for stimulus packages.

Summing up, IREPAS says the outlook for the coming quarter may be described as unstable and unpredictable. Steel production is expected to recover quicker than consumption, resulting in oversupply and pressure on steel pricing. At the same time, there is some optimism regarding a gradual recovery and for an improvement of the current situation, IREPAS commented.

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