Troubled 2022 ends with upturn in sentiment
The start of last year’s fourth quarter continued to be dominated by China’s strict zero-COVID policy and the global cycle of interest rate hikes by major central banks. Key economic indicators confirmed a decline in manufacturing output and the International Monetary Fund cut its economic growth forecast for 2023 to 2.7% - the lowest number since 2001 when ignoring the financial crisis of 2008 and the COVID-hit year of 2020.
The global steel industry continued to face weak demand coupled with rising production costs. Steel mill buyers reduced scrap purchase prices in order to defend their squeezed margins, thus keeping the pressure on scrap prices in Europe and Turkey in the opening weeks of the quarter.
Turkey, the world’s largest importer of ferrous scrap, bought 1.441 million tonnes in October for a year-on-year drop of 6.6%, according to the Turkish Statistical Institute (TÜIK). According to the World Steel Association, Turkish steel production fell by 17.8% year on year in October and by 10.1% across the first 10 months of 2022. Turkish long steel producers continued to struggle with weak demand. Asian consumers found cheaper sources of long steel in the Middle East and South East Asia, which were less affected by energy costs than Turkey.
In Germany, prices stabilized as a result of falling scrap supplies, but demand was also rather subdued. In October, 3.1 million tonnes of steel was produced in Germany, 14.4% less than a year earlier. Comparing favourably to Turkey, however, German production fell by only 6.9% across the first 10 months of the year.
International markets improved in November owing to an upturn in sentiment within Asia, triggered by decisions by the Chinese government to support the ailing property sector and small and medium-sized enterprises with new measures to stimulate the economy. Iron ore, one of the weakest commodities up to that point in 2022, rebounded strongly from its annual low of US$ 80 per tonne in October, dragging other steel commodities with it. Although finished steel products also rose, the gains were much smaller. Scepticism surrounding the positive impact of the tighter COVID policy remained high.
The Turkish market followed Asia, albeit with some delay, and importers had to increase their bids on the export market. The limited availability of scrap and competition from Asia forced buyers to increase their offer prices. At the same time, rising finished steel prices put pressure on already weak domestic and foreign demand. According to official figures for November, Turkey imported 1.324 million tonnes of scrap for a year-on-year decline of almost 35%, outstripping the steep 30.7% drop in steel production.
The German scrap market, however, remained unimpressed by the recovery internationally; announcements of temporary production stoppages and an oversupply of new scrap led to a fall in prices for all grades. In Germany, steel production fell by 17.9% to 2.8 million tonnes in November to give an 11-month running total that was 7.9% lower than in 2021 at 34.2 million tonnes. In the EU, the year-on-year steel production decline up to November 2022 was an even greater 10.1%.
In December, the Chinese government launched a series of additional stimulus measures, including a move away from its strict zero-COVID policy and a boost in political support for the struggling real estate sector. China plans to allow some property companies to increase their leverage by easing credit limits and extending the grace period for meeting debt targets, thus easing the strict “three red lines” policy that has contributed to a historic property slump and has hit steel demand. The impact is likely to be felt over the coming months.
The iron ore market continued its remarkable recovery, rising almost 50% to US$ 118 per tonne by the end of last year. The fall in energy prices also had a positive impact on the international steel sector. Favourable weather conditions and well-filled natural gas storage facilities led to lower natural gas and electricity prices, which in turn stimulated demand for steelmaking raw materials. Turkish steel mills booked slightly higher volumes than in November but had to increase their offers, in some cases significantly, owing to continued tight availability on the export market. At the end of the year, HMS 1&2 (80:20) cfr Turkey was quoted at just under US$ 400 per tonne, an increase of over 25% from the November lows. In response to higher raw material costs, Turkish steel mills were able to raise their selling prices for long products and saw a slight increase in demand. In Germany, demand for scrap picked up: slight price increases were achieved for old scrap whereas new scrap was still plentiful.