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  • Writer's pictureAtlas Commodities Limited.

The Atlas Short Range Outlook - Metals: August 2020

Bullish ferrous scrap pricing sentiment builds across Europe ahead of August purchases.

Momentum is building for the August ferrous scrap market as attention shifts to the supply side following four months of repression.

The story now is supply. It's flipped from consumption and demand to supply with monthly settlement prices with UK mills expected to be concluded at levels of +£15/20 month on month.

After relatively limited downward moves in July, and mid July scrap deals that saw positive pricing, the scrap supply chain is now fatigued after the last several months of reduced supply.

There has been a reduction in both supply and demand of finished products around the world, except in China where output keeps growing to serve domestic demand, in turn propping up sales of semi finished goods, metallics and raw materials from emerging markets.

With Europe now opening up following lockdowns, and on the "build build build' case, stimulus activities are expected to buoy up the markets. Manufacturing and construction activities that had previously been completely halted in many places have now recommenced and are simultaneously boosting demand.

Reopening means utilisation rates of mills across Europe have been picking up significantly and there is still a supply - demand imbalance considering that scrap collections remain constrained, operating at circa 80% of pre COVID levels.

When China reopened after its lockdown, the backlog of demand was so high that they returned within a very short period of time to almost the pre-Covid-19 volumes. On top of that, they took advantage of low prices of semi-finished steel such as billets and slabs and also of HRC to conclude purchases from the global market, propping up EU order books.

Demand has remained consistently strong in China post March and will certainly remain strong up to the end of the year. Strong Chinese domestic demand keeps Chinese steel from depressing export destinations. Accordingly, there is no threat to European markets that “cheap steel from China will flood the market”, which has led to a sustained rally of flat and long product prices in the last few months. In fact, demand from China is expected to assist the global industry in its rebuilding process.

The outlook for the next quarter is very good from the raw materials point of view as the markets are rebuilding and government backed stimulus is going to create demand in Q4 and Q1 of 2021. Credit and the availability thereof is going to be the challenge with the financial strength of many companies tested over coming month's.

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