Steel market participants in the Middle East do not expect prices to normalise immediately, or for raw material inflows to recovery quickly, following the announcement of a potential US-Iran peace deal.
Market sentiment has improved but expectations for an imminent peace deal have not yet changed the physical steel market, participants said. Freight costs and insurance premiums will probably ease gradually, and buyers are cautious after production and shipment delays, stoppages and force majeure notices during the conflict.
Metallics and pellets
A peace deal that results in the reopening of the strait of Hormuz will likely first affect steelmaking raw materials, before any impact is felt in the finished steel market. Steel mills in Gulf Co-operation Council (GCC) countries have faced tighter availability of iron ore pellets, direct reduced iron (DRI), hot-briquetted iron (HBI) and scrap since trade through Hormuz was disrupted, with DRI-based production in the region heavily dependent on seaborne raw material flows.
Iran was a key supplier of merchant DRI and HBI to the GCC before the conflict, leaving Gulf producers exposed. The UAE has been less affected than some other GCC markets because mills have been able to source some pellet and DRI from Oman.
Pellets cannot be moved easily by road and need vessel access through specific ports. Major pellet supplier Bahrain Steel's iron ore cargoes were delayed outside the strait of Hormuz, docked at Madagascar and later discharged in India, sources said. Traders expect some of this material to be brought back to the Gulf once the strait reopens.
Saudi Arabia has also faced scrap shortages but this will not be resolved quickly after the strait reopens, market participants said. Domestic scrap generation is limited and collection usually slows during the summer. Saudi scrap availability is unlikely to improve in June-September, regardless of whether Hormuz reopens, a regional market participant said.
Semi-finished steel
The disruptions to raw material flows have increased demand for semi-finished steel, because billet can be moved more easily than pellets or other bulk raw materials. This has made billet a more workable replacement for mills that cannot secure enough metallics, even if inland transport costs remain high.
Saudi buyers have bought significant amounts of billet in recent weeks, including a large cargo from India. Billet cargoes are being discharged at western Saudi ports and transported by truck to a major production site in the east of the country, because of the effective closure of the strait and despite elevated trucking costs.
Iranian billet has continued to move in small volumes, even though Iranian flat steel supply was disrupted by earlier restrictions on slab exports following attacks in late March that led to production stoppages.
Some Iranian billet has been sold into Saudi Arabia outside the regular channels, but sales to UAE have been scarce because of import certification requirements. Around 50,000-60,000t of Iranian billet is currently on vessels and could be sold to Turkey or Syria, sources said. Sellers are waiting for higher prices before closing deals, with Iranian billet heard at $410-420/t fob.
Finished steel output, exports
Long steel prices in the GCC have risen since the start of the conflict, with the Argus UAE ex-works rebar index rising by 325 dirham/t ($90/t) to Dh2,750/t from 4 February-4 June. Major Saudi producer Hadeed hiked its rebar offers by 670 riyals/t ($180/t) to SR2,930/t.
Meanwhile, Argus' hot-rolled coil (HRC) cfr UAE import assessment rose by $110/t from late February to $600/t cfr on 21 May. Hadeed increased its HRC offers by SR490/t to around SR2,800/t in late May compared with before the war started.
Saudi prices are expected to fall once raw material supply improves and output normalises, but any decline is unlikely to be immediate. Mills first need to rebuild their inventories, clear delayed cargoes and confirm that freight costs are decreasing, sources said.
No immediate market change took place after the latest political announcements, a UAE flat steel producer said. Steel prices do not move like equities, as buyers need to see whether a deal is signed, whether it holds and whether Hormuz opens fully before treating Middle Eastern cargoes as normal again, the producer said.
Finished steel exports from the GCC are unlikely to recover quickly. Buyers outside the region are expected to apply a risk discount to Middle Eastern material after recent delays and cancellations. EU sales are also limited by uncertainty surrounding country-specific safeguard quotas and carbon border adjustment mechanism requirements. Some Saudi export orders are on hold while sellers wait for clarity on EU quotas for the next quarter.
