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China or Gulf: Which side of the force will prevail on CIS/Turkish steel?

The New Year has started for the CIS and Turkish longs steel markets with mixed signals, as the price sentiment in China increased slightly but the latest geopolitical uncertainty in the Gulf area raised concerns for the future market demand developments.

After a series of months characterized by falling Chinese steel prices, January started with billet offers from China increasing by up to $15/mt and similar increases reported by sources for other steel products. The Turkish scrap market and the CIS mills reacted quickly and the daily Platts assessment for imported scrap into Turkey and exported CIS billets both moved up some $2-$2.50/mt since the beginning of the year.

Is the force awakening in China? Much like the return of "Star Wars," China remains the main driver of the steel market, but most steel markets have felt the pull of the dark side of the force due to the drop in prices during the last months.

While it is too soon to say if the current positive pricing sentiment in China will be sustained as the local currency is currently being depreciated further, it is important to notice that the 62% iron ore is currently holding above $40/mt CFR North China, after having hit a low of $38.5/mt CFR North China in mid-December. The daily Platts assessment for rebar exported from China also showed at the beginning of January its first uptick since beginning of August 2015.

But more uncertainties lie ahead in the global steel markets.

On a geopolitical level, the year started with worrying news about the tension between Iran and Saudi Arabia, quickly spreading to a number of other countries in the Gulf area. Sources in the Turkish rebar market noted that demand in the UAE and the Gulf area for steel products could suffer as a consequence of the increasing tensions, hitting directly the Turkish producers being historically very active in that part of the world.

Looking at the daily Platts rebar assessment for exports from Turkey we can notice that the increasing sentiment in China and the rumors of a possible cancellation of the country’s export rebate had pushed the assessment up slightly before the end of 2015, but the tension in the Gulf area quickly changed the sentiment in the market in the first days of January.

Can a recovery of Chinese prices be strong enough to overpower the uncertainties linked with the on-going tensions between Saudi Arabia and Iran? Only time will tell … meanwhile … may the force be with you!