2020 PREVIEW: Traders' top tips to beat the ferrous markets

What’s in store for the steel and scrap markets in 2020?

There is a good mix of opportunities and threats in the global ferrous trading environment in 2020, according to five major traders with supply chains out to the far reaches of the world.

China’s volatile policy changes, blooming markets in South Asia, a global trade war and excess steel supply will continue to have significant sway over the ferrous scrap and steel markets.

Five major traders share their outlooks for the markets - and their best tips to beat them:

What’s in store for China, the biggest steel-producing country in the world?
“Policies in China are key - they will continue to affect the global steel markets. While global ferrous scrap prices aren’t directly linked to the Chinese markets, any movements in the Chinese markets will still affect regional prices trends, and hence regional scrap prices. China will carry on importing metallics in 2020 because it continues to be short on ferrous scrap, especially the higher grades. So many opportunities remain for semi-finished and metallic imports into China, including HBI, DRI, billet and slab.” - a major international trader handling ferrous scrap and steel

“Do not expect 2020 to be as good as 2019 - and we already know how bad 2019 was toward the end of the year. While China could export steel in the first half of 2019, it turned into an importer of steel in the second half. This was a very bad situation for steel traders. China may not export as much steel in 2020 compared with 2019, and watch out for new capacity in Southeast Asia coming up to eat away at Chinese market share.” - the vice general manager of a major Chinese trading company

“The China steel markets are likely to remain depressed. The majority of the downstream segments are performing poorly, because of the weak economic growth. And together with continual changes in industrial policies, such as lowering pollution and tighter oversight on the steel industry, the Chinese market will not see any significant upticks in demand.” - the vice general manager of a major Chinese trading company

What’s your take on the ferrous markets in 2020?
“Prices of scrap or steel cargoes shipping in January and February will continue to increase. This can be seen from the recent increase in demand for steel billets by China and the Philippines, as buyers restock in light of higher upstream ferrous scrap prices. The need for semi-finished steel and ferrous scrap will also continue to increase for this reason so smaller mills that aren’t already running their meltshops will start running their electric-arc furnaces again, which means they will need more scrap in the short term. What’s a little unclear is what will happen after the Lunar New Year at the end of January... Turkey hasn’t been affecting the Southeast Asian steel markets much because of their high scrap prices and corresponding high offers to the region. So a lot of market sentiment will take direction from China again in the first quarter of 2020.” - the general manager of a major East Asian trading company

“There has been a lot of price erosion over the past couple of months in 2019. The steel industry as a whole will remain under pressure, until there’s a rebalancing of global supply and demand. There are limited signs of any upticks in demand, however. Chinese demand will also slow, so 2020 is currently lacking any firm support. There will have to be some cuts in production, before prices stabilize or go on an uptrend.” - the managing director of an international trading company

Which are the growing markets that deserve closer attention from ferrous traders in 2020?
“2020 may see a lot of scrap export activity from Japan, putting pressure on competing supply from the United States. However, Japan has typically not been a containerized scrap exporter, so they need to upgrade their port and logistics facilities. For example, Japan is loading ferrous scrap at a rate of 1,000-2,000 tonnes per day compared with the 3,000-3,500 tpd required by some sellers. Freight and scrap spot prices change very quickly, so such slower loading rates may affect their business.” - the general manager of a major East Asian trading company

“Asia is growing as a whole, especially Vietnam. However, the Malaysian and Indonesian markets aren’t performing that well. There were some expectations that they would increase their demand after their election but it hasn’t happened so far. The one major factor that will drive growth in Asia will be the end of the US-China trade war.” - a major trader

“Bangladesh is one to look out for, especially with its growing economy. We expect steel consumption in the country to be relatively strong compared with other regions in Asia. And because certain domestic regulations impede the imports of finish steel productions, local steel mills have dominance in that market. So Bangladesh’s scrap requirements will continue to grow and it should be a good market for ferrous scrap. It also doesn’t have plans for domestic scrapyards yet. The markets in India and Pakistan should also continue to grow in the medium term, but they are facing economic headwinds at the moment.” - the managing director of an international trading company

What’s the best way to reduce risk in the current trading environment? Especially against a background of trade wars and currency fluctuations.
“Buyers and sellers should maintain smaller trading volumes and keep short-term shipments. Volatile government policies, such as the ones recently imposed by Indonesia, also pose a significant risk to trading. So another piece of advice is to not increase trading volumes sharply or look to expand market share aggressively in 2020. What’s happening in Indonesia now is technically not enforceable, so there will be a shortage of ferrous scrap from now until the policy firms up.” - the general manager of a major East Asian trading company

“While demand is stable, it is not great - and supply has far outstripped demand. Market participants must take great care not to take on too much risk and to be more conservative in 2020 as prices are very volatile. The best way to handle ferrous markets will be to not buy too much because I still feel prices will remain subdued in a bearish 2020. There’s a lot of supply in Asia now, and more will come in 2020.” - a major trader

“Stay very versatile and flexible and expect the unexpected. The world is not one where it is possible to make very accurate predictions, so trading strategies have to adapt accordingly. However, market participants can try to increase their acceptance of derivatives trading, where they can trade underlying commodities without the hassle of physical execution or counter-party performance. There are still some obstacles to overcome and it is not easy to trade derivatives, especially as it can be a partial hedge if there are no physical materials indexed against it.” - the managing director of an international trading company

Paul Lim

paul.lim@fastmarkets.com

Published

Paul Lim

December 19, 2019

07:00 GMT

Singapore