The second half of 2015 will be more challenging than H1, with political and financial issues set to worry global long product markets. Excess supply from China will also put further pressure on the sales volumes and margins of suppliers across the globe. This is according to the International Rebar Producers and Exporters Association (Irepas).

After rebounding iron ore and scrap prices last month helped reduce the supply-demand imbalance, the imbalance this month is moving back towards excess supply. This is because a new wave of China-origin steel offers has increased competition, while Chinese consumption has stopped growing. Exports from China rose 45% on-year in January-May. “Aggressively priced billet offers from China have also been forcing prices downwards in the international market,” Irepas says in its July short-range outlook sent to Kallanish.

Increasingly competitive China-origin steel has meant reduced demand for scrap outside Europe and the US, putting pressure on deep-sea scrap markets. Capacity utilisation at scrap-based mills is consequently being reduced. Scrap demand remains “… decent” in Europe and the US, but pricing will be adjusted downwards to reflect global markets, Irepas observes.

Low prices are “… destroying margins very rapidly” and hampering finances at steel firms, including in China, Irepas says. “The issue of the sustainability of these businesses will force production cuts. The question is when this will happen,” the association continues. “It is clear that the Chinese mills themselves will not cut back, but the question is how long the Chinese banks will continue to provide finance. The Chinese banks will soon complain to Beijing and some measures will have to be taken.”

After 18-24 months of stability, supply pressure is forcing down EU prices. “EU mills will probably begin to adjust output once the second quarter numbers are out,” Irepas predicts. “India, Southeast Asia, the MENA countries and Turkey are facing difficult times ahead due to Chinese price competition… Even the CIS mills seem to be refraining from trying to take business away from Chinese origin offers.”

The outlook for global longs is “bearish” on account of “extreme” supply pressure, with “significant” adjustments soon expected in prices of scrap, pig iron, hot briquetted iron and billet, Irepas concludes.