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Commodities 2021: Turkish export rebar to remain strong near-term supported by scrap

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Commodities 2021: Turkish export rebar to remain strong near-term supported by scrap


Turkish export rebar at almost nine-year high levels

Stronger scrap to support higher rebar prices

Developing situations in export markets to determine demand

London — Turkish export rebar prices are expected to remain elevated in the near-term, with Turkey's main export markets to determine future demand amid expectations of strong scrap prices over the first quarter of 2021.

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S&P Global Platts assessed Turkish export rebar at $640/mt FOB on Jan. 7, stable since Dec. 31, at its highest level for almost nine years. The index was last reached $640/mt CFR on May 30, 2012.

Market participants expect prices to maintain elevated levels for at least the first quarter.

"It is difficult to say what the price trend will be like this year, so many factors are involved," one EU trading source said. "After months of such large increase in prices and restocking in global market, there should be some price correction. But these prices might keep at relatively high levels for at least two to three months."

Another trader echoed this view. "I think there will be some volatility, you can't just keep going higher and higher in pricing. We are taking a breather now," he said. "But with the vaccination rollout, if everything goes as planned, and if 60%-70% of the overall population is vaccinated as intended, there are a lot of reasons to be optimistic."

LME rebar futures rose again on Jan. 7 even though the physical market only showed a couple of new orders. "There's no dissuading the paper market that Turkish rebar exporters will successfully push spot prices higher," according to Marex Spectron's daily steel futures report on Jan. 7. "Futures traders are paying a plentiful premium both for Feb-21 and the current month of pricing, suggesting they expect a very rapid reversal in spot market fortunes."

The LME rebar forward curve showed a slight contango over January-February, shifting into significant backwardation over February-March contracts. January contracts were assessed by Platts at $653.50/mt on Jan. 7, with February contracts at $655.50/mt and March contracts at $640.50/mt, suggesting traders expect some softening in physical prices in the near-term amid weak demand, but prices are expected to remain at elevated levels supported by strong scrap.

Stronger scrap to support higher rebar prices

Strong scrap levels are expected to support higher rebar prices in the near-term even amid low demand. "Scrap seems to be supported at the moment given tight supply in the US. Collection prices are higher," one trader said. "With Russia imposing tax on ferrous scrap exports and China adjusting scrap imports, scrap has a very strong underpinning. Come springtime, scrap might be more available to balance things, which remains to be seen."

"But in the short term, scrap is very high and no sales for rebar," the source added. "No one is really interested to buy. Last few weeks of December and this current week of Jan. has been very quiet. We will have to see if traditional buying markets are comfortable to buy from Turkey."

The trading source also noted that the Turkish domestic rebar market is not significantly supported at the moment, given high inflation rates. With the Turkish Central Bank's (CBRT) decision to raise interest rates on Dec. 24, CBRT increased interest rates 675 basis points since mid-November to stabilize the lira. He noted that the country will need to continue to implement tighter monetary policies to reign in high inflation.

Developing situations in export markets to determine demand

With the Democrats gaining control of the US Senate following the Georgia special elections on Jan. 5, sources are expecting significant infrastructure spending under the President-elect Joe Biden's administration, after his swearing-in ceremony on Jan. 20. Speculation sent steel futures flying.

However, the US Department of Commerce said Nov. 18, 2020, that rebar exports from Turkey were sold in the US at less than normal value during a period of review, spanning from July 1, 2018, to June 30, 2019. As a result, preliminary dumping margins of 11.8%-19.1% were assigned, depending on the producer. Final rates are expected sometime in March.

The European Union is also expected to continue to support economies by driving infrastructure, sources said. But the current high levels for Turkish rebar offers are not gaining much traction from the European market. "If I am to buy Turkish rebar now with less quota, I will see material probably in March earliest, which will be kept for use in April," one EU trading source said. "So, the three-month shipment time adds to the risk and does not make the material very attractive for us."

The EU cut Turkish-origin rebar imports quota starting Jan. 1, to reflect UK's formal exit from the EU customs territory. The quota has an allocated volume of 58,826 mt, lower than 76,793 mt for October-December 2020 quota, with 37,423 mt awaiting allocation as of Jan. 7.

Another trader expects Turkish mills to rely on South East Asia, Israel, Yemen and Latin American markets, like they did in 2020, . "Demand conditions in these markets will dictate rebar exports," he said. However, buyers in Hong Kong and Singapore are also not finding current rebar offers workable. A second trader cited workable levels for Asia buyers at around $610-$615/mt FOB, with Turkish mills currently offering rebar around $650-$660/mt FOB.

In addition, it remains to be seen if China decides to strongly enter the export market again, which is likely to impact the competitiveness of Turkish rebar exports into Southeast Asia. Also, with Qatar improving its ties with Saudi Arabia and the United Arab Emirates, it depends if Qatar-based mills will continue to target export markets like Hong Kong, providing competition to Turkish mills, or if they focus more on the domestic Gulf Cooperation Council market. The UAE is planning on opening trade borders to Qatar within a week, while Saudi Arabia has also agreed to open airspace, land and sea borders to Qatar.