New World Record High for Stainless Steel Output in 2019

Global crude stainless steel production is predicted to reach a new record annual total of 53.1 million tonnes, in 2019. This would exceed the previous high figure, set last year, by more than 4.6 percent.

Despite strong expansion in emerging countries, such as India and Indonesia, Chinese growth continues to outstrip the world average. MEPS’ forecast of 28.3 million tonnes, for China’s annual outturn, in 2019, represents an increase of almost six percent, year-on-year, and more than 53 percent of the anticipated global total.

Indian production continues to grow at a healthy rate. The forecast output for this year, at 3.9 million tonnes, equates to an increase of more than four percent, compared with the 2018 figure.

Indonesia’s outturn, in 2019, is expected to substantially exceed 2 million tonnes, as the Chinese-owned Tsingshan plant pushes towards achieving its planned production capacity of 3 million tonnes per year.

Japan’s output, in the first quarter of 2019, represents a fall of 9.5 percent, compared with the same period last year. The latest available results indicate no significant improvement on that performance. We have, therefore, downgraded our forecast for this year’s production to 3.125 million tonnes, which would be almost 4.8 percent lower than the 2018 total.

After falling, substantially, in 2018, Taiwan’s output is expected to level out, this year, to achieve a total of 1.175 million tonnes. This is 32 percent lower than the country’s peak figure, achieved in 2006.

While South Korea has experienced a stronger recovery than Taiwan, since the Global Financial Crisis, its forecast crude stainless steel production for 2019, at 2.425 million tonnes, is similar to last year’s outturn.

Output, in the European Union, is predicted to record minimal growth, this year, at 7.425 million tonnes. EU production has remained in a range between 7.1 million and 7.6 million tonnes, every year since 2010.

After rising by 11 percent, in 2017, growth, in the United States, slowed to around 2 percent, last year. The increase, in the current twelve month period, is forecast to be a modest 1.5 percent, compared with the 2018 outturn, at 2.85 million tonnes.

Source: MEPS International Ltd.MEPS Stainless Steel Review

Low Seasonal Demand Impedes Steel Price Growth in Emerging Markets

The prognosis for the Brazilian steel market is unchanged. Distributors plan to persevere with conservative inventory levels, reflecting a seasonal slowdown in end-user demand. Shipments to companies in construction related activities is weak. Steel price support from export demand is limited.

In Russia, steel consuming engineering and manufacturing firms are reluctant to increase production capacity in the absence of sustainable end-user demand. Construction-related sales are fragile. Traditionally, the Russian market is quiet during the summer vacation months.

The Indian steel market is described as “slow”. The business climate is being negatively affected by the monsoon season. Distributors see no indications of an imminent pickup in demand. Pressure is growing, for these firms, to liquidate inventory, to minimise potential losses. Building activity is muted and unlikely to improve, due to heavy rainfall and flooding. The mills are targeting overseas markets to offload their surplus output.

Difficult trading conditions persist, in China. Service centres are still reluctant to conclude contracts. Weak end-user demand is offsetting the impact of a new round of production restrictions, in several parts of the country. Heavy rainfall is also curbing construction related activity. 

Ukrainian steel demand is tepid – weighed down by the country’s parliamentary elections. Construction-related activity is slow. The export market is very competitive. The local association of metal producers, Metallurgprom, reports that finished steel production, in June 2019, totalled 1.5 million tonnes – down 13.8 percent, month-on-month.

Turkish service centres and steel traders are wary of carrying too much inventory during the summer months. They note that it is risky to conclude any deals, at present, because of instability of the Turkish lira against the US dollar and volatile import price quotations. The slowdown in the real estate market is a growing concern. Meanwhile, shipments to automotive part manufacturers are forecast to decline next month, owing to scheduled summer maintenance work. Demand from overseas customers is weak.

Procurement activity is lethargic, in the United Arab Emirates. Distributors are booking for only immediate requirements. Inventories are low-to-normal. MEPS’ research reveals no discernible improvement in downstream demand. Traditionally, construction related activity is limited by the hot weather conditions in August and September. Export opportunities are restricted outside the GCC region.

Business sentiment is lacklustre, in the South African steel market. Domestic buyers remark that their suppliers’ current initiatives to lift steel prices are ill-timed and counterproductive. Any further steel price hikes are forecast to be modest, due to underlying weakness in downstream demand and relatively high inventory levels.

The outlook for the Mexican steel market is unchanged. Producers considered implementing a domestic price advance, but, so far, this has not proved possible. Independent stockists opted to defer purchasing activities, finding the current pricing environment unworkable. Import offers from third country suppliers are, generally, considered uncompetitive, when compared with the steel prices that can be negotiated with local mills.

Source: MEPS International LtdMEPS Developing Markets Steel Review

US Steel Prices Expected to Recover in Second Half of 2019

US flat product steel prices have been in a steady state of decline since the mid-part of 2018. A gradual uptick in domestic capacity utilisation was a contributory factor to the price erosion. Imported volumes remain an influence, despite the protection of Section 232 measures. 

According to MEPS’ research, in July, the majority of US steel market participants believe that the bottom of the pricing cycle has now been reached. In an attempt to prevent further cuts, US mills announced two list price hikes, totalling US$80 per short ton. Local buyers, who were strongly opposed to the initial mill pricing initiative, started to place third trimester orders, in anticipation of rising selling values. This led to an uptick in mill bookings. 

A number of US producers strengthened their pricing claims, by announcing their intention to idle blast furnaces during the summer months. Escalating iron ore costs are squeezing the margins of the integrated mills, relative to the scrap-based steel manufacturers. It is widely acknowledged that US mills would need to reduce supply, to align themselves with current demand requirements, if the recent pricing proposals were to be accepted by the market. 

MEPS projects that US selling figures will recover in the second half of the year. Transaction values are likely to be supported by low inventory levels and tightening supply. A revival in scrap costs is expected, in the same timeframe. This should exert upward pressure on steel prices.

Source: MEPS International Steel Review

Negative Sentiment Continues to Suppress European Steel Prices

The success of price hikes, by European steel producers, is muted. Mill profit margins are unsustainably low, as a result of rising input expenditure. Iron ore costs continue to soar, and those for coking coal remain at an elevated level. Moreover, European steelmakers are battling with increased outlay associated with CO2 emissions. The imperative for steel producers to lift selling values is becoming more acute.

Nonetheless, sentiment amongst steel buyers continues to be negative. Heightened uncertainty, which has been witnessed for the majority of the past eighteen months, persists. Brexit, escalating global trade tensions, slowing economic growth and softening demand, amongst many other factors, have combined to create a scenario in which both end-users and steel distributors are keeping their purchases to a minimum.

Import offers from third country suppliers are, generally, considered uncompetitive, when compared with the prices that can be negotiated with local mills. Nevertheless, substantial volumes of foreign material, in certain steel product categories, that had been stored at the ports, were released when the new quota period opened on July 1. Meanwhile, supply chain participants continue to await the outcome of the European Commission’s review of the safeguard measures. An announcement is expected in mid-August.

Source: MEPS International LtdMEPS European Steel Review

Emerging Economies Transform the Global Stainless Steel Market

The shape of the international stainless steel market has changed, in recent years. Burgeoning economic growth, in the developing world – particularly, in Asia – has contributed to growing global production overcapacity, relative to demand. In turn, the number of protectionist trade measures has increased.

China’s crude stainless steel output soared from 2 percent of the worldwide total, in 1999, to more than 50 percent, in every year since 2014. India’s production capability has increased, rapidly, in recent years, while countries such as Indonesia, Malaysia and Vietnam are now providing significant tonnages of finished steel.

While, of course, the economic development of these countries leads to growing domestic consumption, the expanding stainless steel production exceeds this demand. Consequently, extra material is introduced into the international market.

Although the United States and South Korea have maintained very moderate growth rates, in the twenty-first century, the other established stainless steel producing countries have recorded shrinking output figures, since the peak year of 2006. Japan’s outturn, in 2018, was 20 percent below that reported 12 years earlier. The European Union’s annual production fell by 23 percent, during the same time period, while Taiwan’s output was slashed by 32 percent.

Many countries or trading groups have sought to protect their home markets from imports, with restrictive or punitive measures. Antidumping duties have become increasingly widespread.

The United States’ implementation of Section 232 tariffs and quotas, in March 2018, triggered consequential actions. The European Commission’s safeguarding measures, for example, sought to prevent diversion of materials previously destined for the US market, by setting import quotas at the prevailing levels.

As industries in the emerging markets grow, their major players extend their influence, internationally. Chinese producer, Tsingshan Iron and Steel, caused ripples in the global stainless steel trade, with its development of a new large-scale production unit in Indonesia. The plant’s output has introduced substantial tonnages of competitively priced material onto world markets.

Tsingshan recently announced its plan to invest in a new cold rolling facility in the city of Busan, in South Korea. The local government, in Busan, welcomed the move, as a prospective boost to the ailing regional economy. However, the projected output, of 600,000 tonnes per year, would substantially distort the local market. The announcement led to objections from domestic stainless steel producers and processors, as well as trade bodies. Local people have taken to the streets, in protest against the proposed plant.

Source: MEPS Stainless Steel Review – June 2019