EU prices lower, Southeast Asia drives market: CRU

Matthew Watkins – CRU analyst

Southeast Asian steel demand growth will continue to rise rapidly amid China’s slowdown, while Turkish mills will maintain their export push, to Europe and intermittently to Southeast Asia. So says CRU analyst Matthew Watkins.

Following a very profitable 2018 for the steel industry until prices collapsed in the fourth quarter, slower global economic growth is translating into lower steel prices this year. Mills’ attempts to raise prices in Q1 gained no traction. However, there is potential for an upward cycle soon. “I will stick my neck out and hazard a guess that it will be somewhere around May or June as a possibility for prices to increase as people start to buy again,” Watkins said at EUROMETAL’s Central Europe meeting in Prague.

China is making efforts to maintain economic growth but government stimulus is less steel intensive than in the past. Stimulus represents around 4% of GDP versus 30% ten years ago, and the focus now, rather than construction, is on consumption, with measures such as tax cuts, Watkins pointed out.

Although countries like Vietnam and India will continue rapid growth, “… the problem, I suppose, is that they’re also building a lot of capacity to make steel in these regions,” Watkins said at the event attended by Kallanish. This ultimately means that trade in ‘developing Asia’ will remain balanced and the region more or less self-sufficient.

Turkish steel supply, meanwhile, has filled the gap in the EU left by China’s export withdrawal and restrictions on Russia-origin imports. EU buyers have the incentive of short lead times to purchase from Turkey. There is also a “… push factor” for Turkish mills as their local demand has slumped versus the very strong years of 2016 and 2017.

There are occasional spikes of Turkish material going into Southeast Asia when the price is right. However, “… the problem into Asia is that Turkey is not a low-cost producer,” Watkins observed. “It’s a long way away, others are cheaper there. So really the opportunities into that fast-growing Asia market for Turkish steel mills are going to be intermittent, they’re going to be opportunistic sales.”

Turkish sales into the EU are, however, currently hampered by depressed prices in the bloc due mainly to the automotive sector slowdown. “European mills, in the absence of all of those strong automotive volumes, find themselves going into non-automotive segments; they find themselves competing hard with each other for all of this other business, and thus keeping the price low.”

While China is closing some 244 million tonnes/year of net capacity, all other regions are building it, including Europe where the focus is on hot-dip galvanized coil, Watkins pointed out.

As for iron ore prices, these are “… unlikely to go higher than we are now; the shock happened already (after the Vale dam collapse),” Watkins commented. However, prices are likely to remain elevated as the Vale incident set off a series of mine investigations that are likely to disrupt iron ore supply this year, he concluded.