Steelmakers in Turkey and Europe have slowly begun to cut production due to much weakened demand, which has severely reduced the profitability of steelmaking, and for some steel mills, prices have fallen below breakeven.
Manufacturers should now be as vocal as possible about production cuts and make it clear to end users that supply availability may not be as high after summer, market participants said at an industry event in Düsseldorf this week.
Many expect that after several months of no buying activity, buyers will have to return to the market in September, and sentiment may change. But prices in July-August are likely to continue to decline, unless there is a significant improvement in sentiment in Asia, a serious development of the conflict in Ukraine, or an unexpected improvement in activity in the steel sectors.
Many buyers in Europe and Turkey stockpiled rolled metal within weeks of Russia's special military operation in Ukraine, overestimating the impact it had on supply. While the conflict has undoubtedly reduced the availability of supplies from the Black Sea regions, after the closure of ports in Ukraine and the imposition of sanctions against Russia, the uncertainty has affected consumption as well. As a result, buyers were left with a lot of high-value inventory, and today they are struggling to sell off the surplus.
High buyer inventories, slow consumption and declining prices mean that all rollers in Turkey and at least one in Europe will be shutting down or reducing production, according to market participants. Rolling steel mills in Turkey will suspend production for one week in July during public holidays, and some will likely extend this time or restart at a slower pace, with only some of their galvanizing lines operating as normal.
As the main reasons, in addition to the price, Turkish distributors cite anti-dumping and protective duties in Europe, as well as very sluggish automotive demand. Turkey will now have to compete with Vietnam under an EU protective quota for hot dip galvanized steel, so there are fears of being squeezed out despite some European buyers not even seeing Vietnam as a viable option.
The quotas are not really capable of "protecting" the EU industry, as the problem is the level of demand - so the galvanizing lines in the block will also reduce production over the next few months.
At the same time, extended maintenance will be carried out at Turkish factories this summer, which will reduce the production of hot rolled coil, as domestic buyers such as rerollers will be offline for some period. And export demand is traditionally very sluggish in August, and even more so this year. The top three manufacturers are supposed to be slowing down or shutting down production entirely as they push back or extend maintenance periods.
Many expect EU mills to have to cut production, and some have probably already done so, but no one has publicly confirmed the suspension of steel production. With sufficient profits in 2021 and the first quarter of this year, EU producers could wait out the price drop before they decide to cut production, in the hope that the market will pick up in the fall.