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  • Writer's pictureAtlas Commodities Limited.

The Atlas Short Range Outlook - Metals: November 2020

The global steel products market is becoming ever more regionalised with safeguard measures, tariffs, antidumping & countervailing cases reducing the global exchange of products. The Covid-19 pandemic gives producers in certain markets the pretext to lobby their respective governments with even more arguments seeking further protectionist measures. Accordingly, while regional, trade is relatively healthy and demand continues to outstrip supply in so far as raw materials are concerned.

The above notwithstanding, China who for the last five months have been a black hole for all thing’s metallic are easing off in terms of imports - Lately reducing import & consumption of pig iron, HBI, slabs and billets however, no significant tail off is expected in China at least until after the Chinese New Year holidays.

As raw material pricing have been rising aggressively, margins in the Chinese domestic markets have been reduced there is an expectation that China will shift from being a net importer to being a net exporter during the next four months, which could put pressure on finished product prices and demand for scrap as a direct result.

That said, there are reports that Beijing will allow the import of ferrous scrap with fewer restrictions. The last time China was a significant player in the global ferrous scrap market, it purchased about 14 million metric tons in a single year. Of course, China is a much larger producer, with more EAF-based production now. In the event of China lifting its scrap import prohibition, global scrap prices could increase significantly in view of the large EAF-based capacity the country has recently built up.

It is widely expected that next year will be a recovery year globally after all what we have been through in 2020. Accordingly, demand is expected to be relatively good however the underlying macro-economic picture is uncertain and there will undoubtedly be significant hurdles to overcome for the steel sector, particularly where financing is concerned.

In the US, the market situation is fairly stable. Demand is recovering and healthy in the short term, though it has been coming under new pressure from a worsening Covid-19 outlook. On the other hand, the US mills are constantly adding capacity which is not fully utilised, and so supply of finished product and increasing competition is squeezing margins. Domestic scrap prices have moved up again for November amidst a squeeze in availability and on the assumption that the President Elect Joe Biden will likely call for the eventual withdrawal of Section 232 safeguard measures.

The post-Brexit quota reductions have been announced by the EU, and the ‘global’ and ‘international’ volumes seem to have decreased slightly, which should serve the home market well in terms of competition though order books remain uncertain for UK producers of material exported to the EU, which is weighing on demand and creating some uncertainty in the short term.

Price trajectory in the UK, US and EU is positive despite the recent slowdown. It should however be noted that China has increased its production to over 1 billion tonnes and as a result, the world market will be under pressure when its GDP slows down over the coming winter months. This could shift the dynamics if production is not curtailed to suit domestic demand in Q2 2021.

Short term prospects remain healthy and we expect to see further increases into December, whereby Western Europe generally breaks off for a couple of weeks as emerging markets & economies consuming vast quantities of scrap, a la Turkey, the Indian Sub-Continent & Middle East continue to operate at full tilt.

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