Scrap-iron ore cost gap harming long steelmakers, Irepas says

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Decreasing coal and iron ore prices are making integrated long steel producer costs and margins competitive, but competition between scrap processors is pushing scrap prices up and restricting margins, Irepas said on Tuesday July 8.

“Scrap-based steel producers are faced with a competitive disadvantage against the iron ore and coal-based producers, as the iron ore and coal prices have experienced a significant drop whereas scrap prices [have] remained relatively strong in the market, [thereby creating] a huge gap between the cost of steelmaking at a scrap based producer and an iron ore based producer,” Irepas told Steel First.

“Scrap supply on the international market is limited when compared with demand. That triggers competition between scrap processors to access the scrap available in the market,” it added.

The global long products market saw stable demand and pricing in June, but oversupply and trouble in certain markets continues to keep prices under pressure, Irepas said in its July short-term market outlook.

Over recent weeks, China’s domestic slowdown increased long product export volumes at lower prices, making global steelmakers and buyers cautious.

“Competition is now much stronger in the long steel products market, which is a sign that the supply/demand equation is becoming more and more unbalanced,” Irepas said.

In other markets, demand is being restricted by protectionism and political unrest.

“The rise in protectionism around the world, which is squeezing international trade, is increasingly a source of worry,” Irepas said.

Unrest has slowed demand in from Syria, Iraq and Ukraine and put pressure on Turksih mills in particular.

The outlook for next month is generally stable, but seasonal factors – including an uptick in post-Ramadan buying – could affect this situation.

“The increase in demand in the USA, even [with] the impact of the rising volume of imports, is a major positive,” Irepas said.