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  • Writer's pictureAtlas Commodities Limited.

The Atlas Short Range Outlook - Metals: September 2020

The global finished steel products market continues to gather pace and push on, underpinned and driven by the ongoing appetite for all things metallic emanating from China. Finished product prices are at 18 month high’s, with demand continuing to outstrip supply in the near term, paving the way for consistently strong Ferrous scrap prices, especially considering the fact that scrap generation remains at around 75% of Pre Covid levels.

Despite ongoing political and macro-economic uncertainty, with the fear of a 2nd wave re-emerging across Europe, regional markets are performing well and prices are firming up after Governments across the world intervene to bolster their economies by injecting large amounts of cash & stimulus measures for infrastructure projects, which by nature of heavily reliant on steel.

The demand picture in North America is also looking very positive. Higher import prices have and continue to favour US domestic mills offering decent spreads for domestic business, however the near term future is uncertain as a second wave of the pandemic (or a continuation of the first one) appears to be on the doorstep.

After a poor spring characterized by the idling of capacity and low capacity utilization rates due to the coronavirus pandemic, we are currently in a period of strong recovery. Economies are opening up, production is ramping up and in some regions performing better than 2019 levels and demand is strong from most parts of the world simultaneously. Inventories in the supply chain need to be replenished and we expect to see ongoing and underpinned demand for raw materials to meet higher melt schedules.

The very strong quarter seen in China and the current outlook supported by the country’s net importation of steel products have been driving the rebound. Investment activities and stimulus measures in China have been highly positive for raw material and semi / finished product pricing alike. The country is showing strong domestic demand and is not in the mood to export. It became a net importer in June, maintained this trend in July & August, with this trend likely to continue in September and October. With what China is currently consuming, the rest of the world will continue to feel the positive effects of lower availability of metallic’s / semi-finished & raw materials.

Service centres across Europe and the US have been low on stocks and, with any sign of an uptick, those stocks are being replenished with higher transaction prices resulting. The key here is that steel producers should not be misled by the current demand into firing up more of their furnaces, which could exert more supply pressure on the market during winter.

Competition in the market is still high and intense particularly in Asia where price changes of US$1/MT can swing the focus of buyers to supplies of a different origin. At present, China is buying almost whatever is available in the market as far as raw materials and semis are concerned, which eases the competition overall.

Although the outlook for the next quarter is generally very healthy, there are a lot of unknowns due to the pandemic which could have an adverse impact on the availability of scrap and demand going into 2021.

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