Positive and not so positive indicators in the European steel market.

Manufacturers in Europe are hopeful and bring the IHS Markit Eurozone PMI® Composite Output Index almost to near-to-positive territory. Rising to 48.5. This is an indicator of theoretical economic growth but must be well above 50 to complete a full positive perception of the economy.

However, there is a sad reality: the production of goods continues to be significantly reduced and market conditions remain difficult, but perhaps, close to an stabilisation. Anyway, France, Spain, Italy, Germany and Ireland enjoyed their best Composite PMI readings since February showing a comfortable trend. Overcapacity is still evident and the companies are cutting staff levels for a fourth month in a row. The expectations over the second half of the year still remain uncertain, specially when the companies continued to report weak demand in June.

Steel

In China, the price of iron ore has risen by more than 40% since April.

Chinese port stocks of this raw material are now the lowest since November 2016. This is largely due to the demand from the Chinese iron ore industry. However, things should not be entirely bright when China’s steel PMI, the survey of Chinese steel buyers, fell by 1.6 points from May to 49.3 in June, reflecting the slow recovery of the steel industry in that country.

In general, we would say that the base prices of steel coils are not reaching the levels desired by steelmakers, as buyers remain cautious in their purchasing processes.

However, construction activity in China, particularly focused on infrastructure, something that is clearly supported by the Chinese government, would support economic growth and we do not expect large price drops. China alone consumes two-thirds of global iron ore production.

Stainless steel

In a similar situation, analysts expect activity levels to remain at a quiet level during the months of July and August. In fact, it is likely that stainless steel prices will continue to be under pressure during the summer. However, the Bloomberg Industrial Metals Subindex, which includes nickel as a star metal, continues to show growing.

Same as the nickel class I prices from the London Metal Exchange, almost showing equal paths.

In fact, the price outlook will continue to be determined by developments of Covid-19. What is clear is that there seems to be a mismatch between China and the rest of the world. For now, the market seems to think that the pattern of the 2008 global financial crisis can be repeated, with a Chinese led recovery that would be metal intensive. While the recovery is coming, it is time to wait.

Extra balls:

The Baltic Dry index is giving hopes that the most negative impact on world trade has already passed. The strong demand from China’s mill furnaces for iron ore and the progressive opening of all countries’ economies is behind this rise. The Baltic Index measures the evolution of the sea freight cost of solid raw materials such as iron ore. During the period of global confinement, activity at sea has not declined as much as one might have thought.

Worldsteel released a nice report of the top steel producer companies of 2019. If you want to read insights about the tonnages click here.

I remade the list by headquarters (not by tonnage). Dismiss Luxemburg as a producer, and this is the result.

I guess we will live with the steel and stainless steel tariffs and protectionism for a long time.

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