The third quarter continued to be dominated by geopolitical and macro-economic factors. The energy and food crisis triggered by the Ukraine conflict has led to a massive rise in inflation worldwide, to which the major central banks could respond only through a courageous campaign of interest rate hikes despite a global economic slowdown. On the currency markets, continuing US dollar strength consigned major trading currencies such as the Euro, the British pound and the Japanese yen to historic lows.
World crude steel production reached 150.6 million tonnes in August for a decrease of 3% compared to the same month last year. In the first eight months of 2022, 1.254 billion tonnes were produced, or around 5.1% less than in the same period of 2021. Only India and Iran recorded an increase in production, while the largest decline of 18.2% was recorded in Russia and the other CIS countries (plus Ukraine). The year-on-year declines for the EU and Asia/Oceania were, respectively, 6.9% and 4.3%.
The European economy continued to cool in the summer months. Cuts in gas supplies from Russia and the resulting drastic price increases have been spoiling the expected catch-up from the effects of the COVID pandemic. Industry also experienced setbacks in the summer: on the one hand, production was hindered by persistent difficulties in the supply of raw materials and intermediate products; on the other, demand has been suffering from the impact of high prices and the global economic slowdown.
In the construction sector, a significant downturn is emerging as a result of high costs and interest rate movements. In many instances, the steel industry has reacted with massive production cuts, so that the hoped-for revival after the summer holidays - including the scrap price increases expected in September - have failed to materialize. Thanks to the weak Euro, European exporters have been able to increase their shipments to Turkey, boosting their market share from 51% to 68% in the first eight months of the year. Several cargoes have also been recorded to South Asia, which usually sources its material elsewhere.
Import prices for HMS 1&2 (80:20) cfr Turkey stabilized somewhat in the second quarter, gaining just under 11%; however, this is still 19% short of the level seen at the beginning of the year. Despite continued poor demand for long steel in Germany and in the export market, as well as high energy prices, buyers were forced to increase their purchase prices for imported scrap and thus reacted to the higher bids of alternative sales markets. In the first eight months of the year, Turkey imported 15.5 million tonnes of steel scrap for a year-on-year decrease of 10.3%. According to the Turkish Statistical Institute (TUIK), long steel exports fell by 16% to 4.17 million tonnes in the same period.
The outlook for the fourth quarter remains bleak. Purchasing managers’ indices for the manufacturing sector published in September continue to point to recessionary economic performance in many nations. The EU’s measures to combat the energy crisis are currently aimed only at curbing consumer energy spending. However, the problem of energy availability persists and is forcing industry to cut its production. This trend is likely to continue into the first quarter of 2023.
Internationally, traders’ hopes rest on China. In mid-October, the National Party Congress will take place in Beijing and market observers expect positive decisions from the ruling party to support the badly-battered real estate market. Much more important is likely to be the future courses of action with regard to the pandemic and foreign policy: China’s restrictive zero-COVID strategy is acting as a brake on the country’s economy, while its efforts to reintegrate “breakaway” Taiwan are likely to weigh further on the already tense geopolitical situation.
The outlook for South Asia and South East Asia remains constructive and this is likely to continue in the coming years. Opportunistic energy policies and cheap labour are likely to give an added boost to the domestic steel industry and further increase the importance for steel scrap exports.