Long products, low quotations: a review of the rebar market

The trends in production and consumption of long products, in particular rebar, has always been an important benchmark of the situation not only in steelmaking, but also in construction. Ukraine exports three quarters of these products. This means that the situation in foreign markets plays a crucial role in capacity utilization planning. This year, the market situation was not advantageous for Ukrainian producers.

Over the year, prices in global raw materials markets had a decisive influence on movement of prices for long products. The situation in Ukraine’s domestic market was aggravated by a decline in housing construction. Furthermore, a disparity between scrap and iron ore prices adversely affected the competitiveness of domestic rebar producers.

Chronology of peak quotations

Starting early November 2018, rebar prices in the Black Sea ports slumped by 20% to $410 per ton, against the same period of 2019. A collapse in quotations in late 2018 was due to a sharp drop in domestic demand in Turkey. The country’s GDP decreased by 2.4% in Q4 2019 compared to the previous quarter. In Q3, it decreased by 1.6%. The Turkish economy has entered a technical recession for the first time in the past decade.

In late 2019, a tailing dam burst at Corrego de Feijao iron ore mining facility, Brazil, owned by Vale SA. Mining waste slammed into Vale’s facilities and the Brazilian town of Brumadinho in the state of Minas Gerais. According to the recent data, 248 people were reported dead and 22 missing. Brazil’s National Mining Agency ordered Vale to suspend operations. Later, Vale decided to halt production at 10 mines.

Global prices for iron ore and scrap started rocketing amid expectations of future shortage of raw materials. Iron ore prices jumped to the two-year ceiling until February. So did prices for long products.

In the first week of February, price quotations in Southeast Asia rose by $13 and $5 respectively, up to $480–516 per ton (CFR). According to Ukrpromzovnishekspertyza state-run company, domestic rebar prices in the United Arab Emirates increased by $13 in expectation of the growing demand, up to $511–525 per ton, including shipment costs. In Egypt, a weekly price increase was $14. Export quotations for rebar and wire rod were expected to increase until late March–early April by another $20–30 against February, and reach a local maximum.

However back in February, the European Union imposed restrictions on rebar imports from Turkey that exhausted its 5-month quota in less than 2 months. This resulted in increased competition in other regions.

Since early March, rebar prices began to decline. According to GMK Center analysts, among the factors that influenced the trend there were various protective measures that were widely applied by governments of different countries to protect their markets in that period.

In mid-April, Egypt imposed temporary import duties of 15% on steel billet and 25% on rebar for a term of 180 days. The Egyptian government said the import duties were designed to protect the national industry against unfair competition.

“The duty on rebar has little impact on Ukraine, since our companies almost never exported rebar to Egypt after the imposition of anti-dumping duties in 2017. Instead, the duties hit Russian suppliers and, as a result, the competition in the market intensified,” underscores Andrii Tarasenko, GMK Center Chief Analyst.

Besides, this restricted billet imports. The consequences were felt by ArcelorMittal Kryvyi Rih, Dniprovskyi Iron and Steel Works, and Dnipro Metallurgical Plant, since Egypt was the largest consumer of Ukrainian billets. As a result, the competition increased, and prices for semi-finished products decreased.

In May, the U.S.–China trade war sharply escalated following the failed talks in Washington. U.S. President Donald Trump’s administration slapped tariffs from 10% to 25% on $200 billion worth of imports of Chinese goods. This stirred up global commodity markets and increased fears of recession in the U.S. and the increasingly pronounced slowdown in China’s economy. These fears prompted the government to more actively stimulate the economy. Beijing announced its intention to increase tax cuts and government spending. The yuan weakened against the dollar, which supported local exporters.

The economic incentives in China (tax cuts estimated at $300 billion, a $185 billion increase in municipal debt, and a $126 billion injection to boost liquidity) mainly implied investment in construction. As a result, rebar prices reached the level of prices for hot-rolled coil, production costs of which are higher.

August was a real shock for the market. This month, the U.S. increased duties to 30% on $250 billion and to 15% on $300 billion worth of imports of Chinese goods. As a result, the already low demand and negative expectations triggered a collapse in prices for raw materials and, consequently, finished products.

After a series of jumps in iron ore prices in July, up to the ceiling of $130–135 per ton, the market started stabilizing. Gradually, supplies of iron ore to China began to recover and raw material reserves in the country’s ports started to grow. Trade wars added risks to the situation. Since early August, iron ore price quotations started collapsing, with an initial cut of 20–25%, down to $88–93 per ton.

Yet the main reason for a fall in prices for long products and rebar was a cut in scrap prices. Turkey, as the largest importer, sets trends in the scrap market. Turkey’s steel sector is experiencing difficulties with both domestic consumption, which fell by 28% in January–August, and exports. Steel production reduced by 10.5% in the same period, scrap imports — by 15.4%. Unlike Turkey’s steel industry, scrap supply is inelastic. Specifically, Turkish steel producers pushed down U.S. scrap suppliers, which prompted a 20% decline in scrap prices over 6 weeks.

Rebar prices collapsed as well. For the above reasons, producers could not since then considerably increase prices for long products, in particular rebar. Furthermore, in late October, Turkey exhausted its EU rebar quota.

Scrap prices slightly increased since late October 2019, from $225 to $260–265 per ton. According to Irepas, the growth was due to a replenishment of stocks rather than a growth in demand. Along with prices for raw materials, prices for metal products recovered.

Local specifics

In 2019, prices for rebar in Ukraine’s domestic market moved in the wake of global quotations. Attention should however be given to the local specifics. Last year, rebar amounted to about a quarter of Ukraine’s domestic market of metal products, 926 thousand tons. The main rebar consumer was the housing construction sector.

In Q1–Q3 2019, Ukraine’s housing construction volume increased by 2%, while the cost of construction works grew by 3.5%. Hence, developers could not ensure a sufficient demand for long products.

In August–September, a drop in scrap prices inflicted losses on Ukrainian producers of long products. A decline in scrap prices was much stronger than in prices for iron ore used by Ukrainian producers. Turkish steel companies got an advantage, whereas Ukrainian steelmakers lost competitiveness.

“In Ukraine, rebar is produced mainly using BOF method, with the use of iron ore. Due to a rise in iron ore prices until July of this year, the rebar-iron price ratio was decreasing. So, producers of BOF rebar were in a worse position than electric-arc steelmakers,” explains Andrii Glushchenko, GMK Center analyst.

In anticipation of the upcoming year

Relatively high prices for iron ore and trade barriers prevent a further decrease in prices for rebar and long products. The U.S.-China trade deal, announced for Q1 2020, is likely to give the market a break. Yet, the improvement in the market will most likely be temporary, if the deal is after all signed. It is impossible to predict President Trump’s mood.

According to the International Rebar Exporters and Producers Association, Irepas, prices for long products will continue to be affected by scrap prices. A recent growth in scrap quotations is most likely temporary. Low capacity utilization in Turkey continues to put pressure on prices for scrap and, consequently, long products. China could change a lot, if it softens its scrap import policy. To date, the country classifies scrap as waste and actually bans its imports, while local players suffer from scrap deficit.

annaiengineering.comThe demand from the EU countries is unlikely to maintain prices for long products. This year’s growth in construction supported the market, but, according to EUROFER, it will slow down by 1.2% next year. Imports are to grow by 3% due to an increase in quota volumes. Yet, the share of imports in the long products segment is 22%.

SteelHome expects a decline in demand for steel products in China next year, along with a 2% drop in steel production. As a result, average prices for rebar may decline by about 8%, whereas those for iron ore by 10–15%. A low difference between price quotations in China and in other regions will hold back exports. China’s exports are not expected to increase next year.

This year, competition increased from India and Iran. The latter, after the resumption of sanctions, is increasing exports of not only semi-finished products, but also finished products to the countries of Southeast Asia. India faces a liquidity crisis and problems with funding of government programs supposed to stimulate domestic steel consumption. A return on investment in the development of steel capacities is required to increase exports. If China’s growth starts to slow down next year, the market competition may only increase.

In general, high uncertainty and price volatility will continue dominating the market. A weak demand is seemingly a long-term reality. As before, excess capacities will make pressure on prices.

Download the full version of GMK Center’s report on trends in global prices for long products here.