Cause for optimism as long steel market bottoms out, Irepas says

The global long steel market has reached its bottom level, with activity expected to pick up in the near term, according to the rebar sector’s global organisation.

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“Buyers will be in the market in the coming weeks to order material for January 2015 arrivals and this is expected to boost market sentiment,” the International Rebar Producers and Exporters Association (Irepas) said in its short-term outlook report this week.

“News on the removal of Chinese export rebates could also give the market a lift,” it added, referring to recent speculation in the market.

The association is also carefully bullish of market prospects in the New Year, given the improving correlation between scrap and iron ore prices.

A stronger dollar, helped by a third round of quantitative easing in the USA, has aided the correction of ferrous scrap prices that “are now closing in on a more normal multiple over iron ore prices”.

Iron ore prices have fallen by over 40% since the beginning of the year, with Metal Bulletin’s daily index for 62% Fe material now standing at just above $75 per tonne cfr China.

Scrap prices only started a steady decline in August. Metal Bulletin’s ferrous scrap index for HMS 1&2 (80:20) material of North European origin has dropped by around $80 per tonne since then to a level below $300 per tonne cfr Turkey.

“With talk of the European Central Bank (ECB) adding monetary stimulus, the euro will probably lose value against the dollar, reducing European scrap export prices,” Irepas noted further.

The scrap market outlook is gloomy for the next month, and activity is likely to remain muted until prices stabilise.

The balance between scrap-based and iron ore-based steel production costs has not been achieved yet, but declining scrap prices have already made margins more acceptable, and may in the longer term limit China’s share in the long steel export market, Irepas said.

Long steel demand in North America, Southeast Asia and the Gulf region remains strong, while European and South American markets continue to show weakness.

Competition in the global longs market is still tough, and could become more pronounced as Ukraine returns to the market.

Low prices and oversupply characterise many markets, Irepas said.

As a result, mills are adjusting their production levels while many regions push for new protectionist measures against imports, particularly from China.

“The most interesting aspect of the market is that, with each new protectionist action against a certain exporting country, in most cases China, new business prospects can open up,” Irepas said.