Further steel production cuts could consolidate some of the price increases seen in recent months. However, questions over the sustainability of Chinese steel demand, as well as the impending month of Ramadan and slower summer season call for caution, according to International Rebar Exporters and Producers Association (Irepas).

Surging prices have been based not on higher consumption, but on the re-stocking of “… abnormally low” inventory levels, Irepas says in its May short-range outlook seen by Kallanish. The weaker dollar, increase in oil prices, and low interest rates have also supported higher commodities prices.

The sustainability of these increases is the big unknown. It will depend on how long Chinese domestic demand persists, and when re-stocking activity will slow down. Moreover, how mills adjust production in reaction to price increases will play a role. The increase in Chinese output since March has already begun to erode prices in Asia. Lastly, protectionism – especially in the US – is becoming more “… aggressive”, which is likely to impact international trade, Irepas observes.

“Production adjustments should be seen in the near future,” Irepas forecasts. “If the adjustments turn out as expected, this should help give consistency to the latest price movements and to generate further improvements in the supply-demand balance.”

“A better financial performance is being enjoyed by the whole supply chain, even though the situation may be considered too good to be true,” Irepas continues. “The markets have not been interfering with each other as much in the last few months and so demand will remain fairly strong for the coming month.”

Thanks to surging prices, scrap collection has rapidly increased. This will soon lead to higher scrap supply competing for “… the same low demand levels,” Irepas says. “It is inevitable that the market will see some correction, though not to levels at which it would be more economical to buy Chinese billet than to melt scrap.”

Competition in the global long steel market has declined versus 2015 due to anti-dumping measures. Stronger commodities have led to costlier sea freight, thus reducing long-distance competition. Moreover, there is less participation from China due to its higher domestic demand and prices.