The evolving global economic situation because of COVID-19 has made it difficult to give a clear outlook for the longs market, according to International Rebar Exporters and Producers Association (IREPAS’) short-term outlook for April.
US Rebar: Flat to slight downward prices expected
Rebar prices have remained flat over the past three weeks and are at $30-31/ctw ($600-620/nt, $661-683/mt) fob US domestic mill at present, according to market participants who spoke to Davis Index. Imported rebar for May shipments on the East Coast and via Houston are in the range of $28.25-29/ctw ($565-580/nt, $623-639/mt) ddp loaded truck at pier.
Both fabricators and rebar mill buyers expect rebar prices to remain flat. Given the limited price variance and higher risk, US-based rebar buyers are not ready to risk buying imported rebar for a May delivery, focusing on domestic suppliers instead. Fabricators are also only buying as needed. Several fabricators report tight financing and are requesting cash payments or highly guaranteed letters of credit from their customers to proceed with their contracts. This high cash basis expectation could halt trade unless economic concerns begin to ease and financing options become plentiful again.
Flat pricing expectations are supported by the fact that mills will also need some financial cushion as they won’t be able to increase prices when scrap prices increase in May or June as buying companies try to gain momentum after months of temporary suspensions and shutdowns.
A few fabricators contacted believed that prices could decline slightly, but themselves expressed the fact that lower prices in this economic environment would not increase short-term demand and speculative bulk purchases are too risky for most buyers. The concern is when will business supply and demand return to normal in the US as well as if COVID-19 could influence a cycle of periodic stay-at-home orders since the concept of vaccines are 12-18 months away according to experts.
The IREPAS outlook
According to IREPAS, the impact of the pandemic is reinforcing regionalization and protectionism as regions try to balance demand and supply dynamics, giving rise to significant price differences in the short term. The current stoppages and lockdown policies are not coordinated, thus when the market eventually opens, IREPAS predicts, too much capacity could dry out simultaneously and come back either as rapidly or in random stages given other business considerations.
Economies like Brazil, EU, and Turkey are struggling and face serious challenges in bringing their mills back to profitable production levels especially since raw material supply is drying up.
Some industry restarts, rebuilding and government stimulus in China has improved rebar pricing and demand in China. However, many countries across the world are in the early or middle stage of lockdown, which translates to different stages of production rates ranging from lower capacity utilization to fully stopped. As a result, some fabricators have lost orders while mills and fabricators may be affected by supply chains.
Ferrous scrap availability has decreased significantly worldwide as industry and trade came to a halt throughout US, EU, CIS, and other regions because of COVID-19. The decline in collection sites is decreasing feedstock volumes and the situation is compounded by limited industrial scrap because of shutdowns at automotive and industrial sites. Scrap collection and processing yards are also being affected in some countries due to stay-at-home and lockdown policies.
Under these circumstances, IREPAS indicates, Q2 2020 will see the lowest pricing levels and volumes. The fate of the global longs market will begin to reshape in Q3 2020 as the virus’ curve flattens and global health status is determined.
Massive capacity reductions in scrap, billets and long products are expected during Q2 with protectionism and regionalization intensifying as domestic economies try to return to profitable levels. Normalcy in rebar may not be achieved until sometime in the middle of 2021.