Irepas foresees more output cuts, pricing pressure

There could be more steel output cuts in May as lockdowns will probably continue until June, says the International Rebar Exporters and Producers Association (Irepas). Industrial activity will be low and demand for steel limited, although Europe and the US could reopen gradually this month.

Steel production will, however, probably recover quicker than demand, which may put pressure on pricing in the market in the second quarter. “There is oversupply of almost everything, except those items that suddenly end up being in short supply due to impacts on the supply chain,” Irepas says in a note sent to Kallanish.

Scrap-based steel industries seem to have fared better during the crisis, with long steel production continuing. Scrap availability has been heavily reduced during the lockdown period.

China opening up and economic stimulus activities throughout the world will buoy markets for some time when reopening takes place, Irepas says. “China is recovering rapidly, mainly in the construction sector, which is boosting the demand for rebar and billet,” the association observes. “Chinese steel exports are still under control. In fact, Chinese companies are active in the market importing billets.”

The EU economy is likely to experience a depression after the lockdown, with numerous insolvencies taking place as banks and credit insurance companies are not able or willing to lend cheap money and maintain coverage limits. Unemployment in the bloc could return to 2008-2009 levels. However, the region’s construction industry is still doing fine.

In the US, suppliers are willing to sell even at cost level in order to continue operating. Domestic prices are similar to prices of imports from Mexico or Canada, and cheaper than those from countries subject to Section 232 duties. Construction in the US was slow in April and it looks like May will see only a minor improvement.

“Oil prices have sunk to historic lows, creating a serious negative outlook for the whole steel pipe and oil tool manufacturing industry,” Irepas comments. “Many companies are expected to downsize or to become insolvent in the US oil-producing states, particularly in Texas. This will negatively affect commercial building, housing construction and even auto manufacturing in the US.”