Market unlikely to recover before H2 2025
Panelists at Kallanish Flat Steel 2024 in Istanbul expressed mostly a bearish outlook for the market until at least the second half of next year.
Tayfun İşeri, chairman of Turkey’s Flat Steel Product Exporters, Importers and Manufacturers Association (YİSAD), emphasised he is an optimist but is pessimistic about the market outlook for the first time.
The steel industry has been “hectic” for the past two years, he noted at last week’s event. Global trade has regionalised and the WTO has lost its respect. The Russia-Ukraine war, the Turkey earthquake and the Palestine-Israel conflict, as well as high interest rates and inflation have impacted steel demand and will continue to do so. Chinese exports, which will exceed 100 million tonnes before the end of 2024, pose a threat to steel prices and production in 2025, İşeri noted.
Selçuk Yılmaz, speaking at his first conference since becoming Yıldız Demir Çelik general manager last month, said Turkey’s imposition of a 6.1-43.31% dumping duty on HRC imports from India, China, Japan and Russia has already impacted domestic HRC pricing. Next year, there may be an anti dumping investigation into galvanizing, cold rolled and pre-painted steel imports in Turkey, he added. Operating profits are decreasing amid high energy costs, while production capacities are rising.
Kallanish Asia editor Tomas Gutierrez stated that Chinese steel demand will fall consistently in the foreseeable future, meaning China will need to export its surplus. Noting that overall fundamentals are weak and the recently announced stimulus packages are insufficient to support the steel industry, Gutierrez pointed out that economic confidence is required to trigger a demand recovery.
Stemcor managing director Dick Sands said construction has been hit by high interest rates, while global sentiment is very negative today. “The only thing that can move mountains is sentiment. We need positive sentiment,” he affirmed. Although wars are having a negative impact on steel demand at present, once they end, this will boost demand.
Trade cases are likely to increase on Chinese material, Sands continued, adding that he is no longer confident China can manage its economy.
GMK Center chief executive Stanislav Zinchenko stated that although he expected 1.4% annual growth next year, which would be good for the European economy, European steel demand is unlikely to improve in the next six months. The market is currently at the bottom of the demand cycle, with demand to return by 2026-2028.
The Indian market has been stagnant for almost a year. “We failed to see the expected infrastructure investment projects after the [Indian] election. The biggest challenge for India is exports which decreased by 50% in the nine months this year, while imports grew 60% … India should decide about protection measures to compensate for export losses and stimulate its local market,” Zinchenko concluded.
Investment breeds US success, scrap imports likely: Tayfun Iseri
The success of the US steel industry comes down to investment and location management, whereas Europe has fallen behind in this regard. With electric arc furnace-based flat steelmaking capacity growing, competition will increase for prime grade scrap, which mills in the US South will start importing. So says Turkish Flat Steel Import, Export and Industry Association (Yisad) chairman Tayfun Iseri.
US mills have reinvested bumper profits into building 10 million tonnes/year of EAF capacity in the last five years. They have taken obsolete blast furnaces offline and invested into EAFs amid the push for decarbonisation. Europe has meanwhile fallen behind, implementing improvements to existing production processes rather than greenfield investments, according to Iseri.
While most BFs were built in the Midwest and Great Lakes areas, the new EAFs have been built in the South. Midwest/Great Lakes BF capacity shrunk from 44.5m t/y in 2019 to 39.6mt in 2023, while EAF capacity in the South rose from 34.8mt to 38.3mt. This will result in reduced US scrap exports.
“Most EAF investments in the US are coming from flat steel. You need better scrap for this. Higher knowhow, better raw material. Everything is possible in an EAF. If somebody tells you it’s not possible, it is possible!” Iseri told delegates at Kallanish Steel Scrap 2024 in Istanbul on Thursday.
While prime grade scrap competition will increase, local generation will decrease amid consumers holding onto their cars for longer, and car ownership reducing in general. Mills in the South will therefore import the required scrap through Gulf of Mexico ports, Iseri continued.
Increasing Mexican EAF capacity will also compete with US mills for scrap supply, which will lift prices. Meanwhile, “Europe is not ready to consume its prime scrap yet”, so will continue to export material, Iseri noted.
Overall, the US and EU will continue generating more scrap than they can consume, meaning export restrictions are unlikely to be implemented, as “they can’t sit on this big pile of scrap”, he added.
Iseri also challenged the assertion that Turkey dictates scrap prices. Since US mills have bought out multiple scrap collectors, they control 60% of the US scrap market. “The US dictates what the price will be,” he concluded.
Adam Smith Poland
Scrap not gold, trade regulations ineffective, say panelists
“Will scrap be the new gold?” asked Turkish Flat Steel Import, Export and Industry Association (Yisad) chairman Tayfun Iseri. “I’m not sure.” Technological innovation will see alternatives developed to scrap in future, he predicted.
Decarbonisation and CBAM, meanwhile, are just new means of “protecting their own”, he said in reference to EU authorities. In the past, the EU has levied anti-dumping or countervailing duties, but “this will be thrown out of the window” after the huge subsidies being given to EU steelmakers to decarbonise, Iseri added.
“I think protectionism is self-defeating,” observed Marcel Genet, founder and president of consultancy Laplace Conseil. “What we forget is that if we don’t do something with steel, the product has no value.”
He emphasised scrap trade restrictions are unlikely. “It’s pure nonsense for countries to limit trade when it is more efficient to do it in one place than the other,” he noted. “Turkey is not trying to steal scrap from the EU or US. They are very nice to create an outlet for countries that do not have capacity to consume their own scrap.”
Moreover, monthly price negotiations between scrap suppliers and steelmakers must be scrapped and all parties should work towards the goal of maximising steel recycling, he added.
“Regulation will not move needle, the scrap industry itself will. More scrap will be kept in Europe, knowing that demand for it is increasing. So yes, there will be less available for Turkey but it is not regulation that will cause it,” said McKinsey senior expert Steven Vercammen.
Turkey’s dependence on scrap imports is a big problem, meanwhile. The country must “reengineer its capacities and type of steel it is producing,” noted Muammer Bilgic, managing director of Bilecik Demir Celik. CBAM and environmental regulations will hit Turkish steelmakers, with its integrated mills likely to soon lose competitiveness.
Scrap shortages are unlikely to be a problem in the next ten years, Iseri observed. China could enter the scrap export market, while consumption of steel will decline in the coming decades. Car owners are holding onto their vehicles for longer, and car ownership in general is decreasing. “That’s why I’m saying scrap may not be the new gold,” he concluded.
Adam Smith Poland