Protectionism will not help buoy steel prices: Irepas

Low finished steel prices in the US, particularly for hot-rolled coil (HRC), show that protectionist measures imposed by president Trump have not worked, international rebar association Irepas said in its latest short-range outlook.

Demand for US steel products has remained unchanged, but supply from domestic mills is increasing, pressuring prices. The US domestic HRC price has been on a downward trajectory since April, with the Argus weekly HRC US Midwest assessment plunging to $539.50/t ex-works on 9 July from $704.25/t ex-works four months earlier.

"Domestic mills face very little pressure from imports, but ironically, they are racing against each other to offer deals to even small buyers," Irepas said.

US Steel was forced to idle two blast furnaces in the US last month amid a production glut. But even removing capacity from the market did not seem to push prices up and steelmakers NLMK, US Steel, Algoma Steel, Nucor and ArcelorMittal all announced $40/short ton price increases this week.

Geographies that tend to have significant blast furnace capacity, such as the US, have likewise suffered a squeeze in margins as a result of the increasing iron ore prices. This is particularly true for South American markets as integrated mills are squeezed between low rebar prices weighed down by limited infrastructure investment and high iron ore prices, leaving them very few export options.

The Argus iron ore fines 62pc Fe cfr Qingdao assessment reached $118.70/dry metric tonne (dmt) today, up from $88.35/dmt six months earlier.

Irepas expects Canada to overtake Mexico as the US' number one exporter since it is now free from tariffs. Mexico is generally more cautious over future antidumping measures, a concern that seems to be well-founded as the US this week imposed duties on structural steel imports from Mexico and China.

Irepas expects electric arc furnaces to extend their order books as iron ore prices soar and blast furnace outputs are cut. As a result, it expects scrap demand to remain stable, with European consumption over the summer drawing down availability. But higher scrap prices will not last despite this, the association said.

The American markets are not alone in feeling the pressure from a global steel overcapacity as the glut is exacerbated by an unusually quiet European market primarily caused by a drop in manufacturing activity.

Irepas said European steel association Eurofer's attempts to strengthen safeguards for European imports will negatively impact the downstream steel industry, isolating trading partners, despite the fact European mills have not been forced to reduce prices and have strong profit margins.

"Competition in regional markets is intense, but there is much less competition from deep sea sources due to protectionism. The lack of consumption pushes competition higher. There are very few markets left for exporters," Irepas said.

With limited opportunity to import into Europe and a weak domestic market, Turkey will continue to feel the pressure from protectionist measures, the association said.

But while the European and American markets suffer, Irepas said demand in China is growing while exports drop. "The risk of China exporting steel products is absent, which helps support a balance between supply and demand. On the contrary, China is becoming a destination for semi-finished products. Going forward, we can expect continued investment in the electric arc furnace route in China," it said.

China has made a much stronger commitment to cleaning up its steelmaking footprint in recent months. Steel production cuts in Tangshan over environmental concerns last month stoked sentiment and boosted prices.