Economic conditions seem poised to push steel and ferrous scrap prices toward lower pricing in the second half of 2019 and into 2020, according to presenters at the 4th Steel Scrap, Billet & DRI Trade Summit, hosted by SteelMint in Bangkok in late August.
The world’s steel producers churned out more product in the first half of 2019 than at any time in history, all while automotive sales in China, India and other major markets were falling, noted Rajiv Mangal, president and CEO of Tata Steel Thailand.
Mangal characterized the auto segment in Asia as “under a fair amount of stress,” spurred in part by anti-pollution laws but also by tightened financing and liquidity conditions that are hampering sales.
Iron ore prices seem to be signaling a near-term future of lower steel prices, said Mangal. After prices escalated in early 2019 in response to the Vale dame collapse in Brazil, they moved down to $86 per ton in August, with few forecasters predicting a rebound in the final four months of 2019.
Ferrous scrap prices have been weak throughout 2019, “largely due to domestic issues in Turkey.” That nation is the largest buyer of globally traded ferrous scrap.
Commodities analyst Gordon Johnson of New York-based GLJ Research more than matched Mangal’s bearishness when it comes to the near-term future of steel prices.
Beyond gloom in the auto industry cited by Mangal, Johnson predicted that China’s steel-absorbing building boom was nearing its day of reckoning. “China’s market has caught the flu,” stated Johnson, who pointed to three different declining purchasing managers’ indexes in that nation.
Johnson said in the second half of this decade China has seen a “suffering” liquidity ratio of return, causing money to be pumped either into “rolling over into existing debts” for earlier construction projects or being directed toward new, unwise property investments.
While some 1.2 trillion Chinese renminbi (RMB) might still be flowing out from Chinese lenders to customers, Johnson claimed some 2 trillion RMB per month is needed to spur growth “in the real economy.” He added, “China has reached a tipping point in our view.”
The commodities analyst was not optimistic about steel pricing conditions in the United States either, where he predicted President Trump will continue to take a hard line on tariffs “to cater to his 36 percent base” of voters. Johnson said steelmakers in the U.S. were adding new production capacity “to appease Trump” and owing to a “false sense that Trump’s tariffs are protecting them.”
Johnson said iron ore prices were as low as $35 per ton in 2004, before China’s building boom, adding, “We could be headed back there.” He warned attendees of steel, aluminum, copper and other “bulk commodity prices you will see dip to levels you didn’t think were possible” as China’s ability to consume steel dissipates.
The SteelMint 4th Steel Scrap, Billet & DRI Trade Summit was August 27-29, 2019, at the Hotel Avani Riverside in Bangkok.