Highlights of the Week

Metal prices around the globe are gaining stability due to depleting supplies amid rising energy costs. Soaring electricity prices and power rationing in regions across Europe and China have caused many local steel mills to suspend few operations to reduce energy costs or halt production altogether. While rising inflation, currency devaluation and fears of recession remain the dominant narratives of the day, but woefully low inventory levels and shuttering production capacity seem to be driving price hikes. There is a healthy demand for tonnage in all major recycling destinations at the moment, which is poised to attract the aging tonnage from the market. With falling freight rates in some vessel segments, such as cape size bulkers which have declined to their lowest levels in over six months, we are expecting to see more activity in the recycling market which has been in hibernation for the past two months.

Extreme heat and drought conditions are battering the United States, Europe and China, compounding problems for workers and businesses at a time when economic growth is already slowing and adding to upward pressure on prices. Water levels behind dams are depleting, curbing electricity generation at hydropower plants, just as air conditioning demand is spiking. In China’s Sichuan province, all factories have been ordered shut for six days to conserve power. Across the world, rivers supporting global growth, such as the Rhine, the Yangtze, the Danube and the Colorado are all drying up, impeding the movement of goods, messing with the irrigation system and making it harder for power plants and factories to stay cool.

Iron ore prices have slipped from about USD 160/MT in March to just above USD 100/MT today. According to Morgan Stanley, the prices will continue to face headwinds into the year-end, as hopes of an imminent recovery in Chinese steel demand have faded.

Inflation and high energy prices are wreaking havoc on European businesses and industries. With Europe driving up prices, gas is becoming too expensive in other parts of the world. Governments across the developing countries are struggling to keep energy flowing to citizens, as tight supplies and weaker currencies put some sources out of reach.

Uptick in demand for steel

Market has been relatively quiet this week due to festivals and Independence day holidays, but there has been an improvement in sentiment of end buyers from Alang, supported by stable steel prices. The steel prices remain supported on lower production and active demand from consumer industries.

State-controlled Steel Authority of India (SAIL) expects demand for steel toimprove in the second half of the year as construction and infrastructureprojects gain momentum.

Medium and small steelmakers in India are feeling the heat as prices of key inputs like sponge iron and imported scrap steel continue to rise amid a correction in the prices of finished steel. A paucity of coal in the domestic market is pushing upwards the prices of sponge iron. Meanwhile, there has also been a squeeze on the availability of scrap steel, which is largely imported, thus pushing up the price of the commodity.

Improvement in market sentiments

Offer prices from the end buyers of Bangladesh have improved this week as the steel mills are now actively procuring materials to build up their inventory as they expect finished steel demand to recover before the onset of winter season.

Major steel mills have lifted their rebar offers further by around USD 20/MT on improved restocking by distributors in anticipation of a further hike due to power outages in the near future.

Bangladesh is not in a crisis situation and its external debt position is "very different from several countries in the region," said Rahul Anand, division chief in the IMF's Asia and Pacific Department. The IMF stands ready to support Bangladesh, and the staff will engage with the authorities on program design as per the established policies and procedures of the Fund.

Heavy rains disrupting deliveries

Due to heavy rains and the possibility of some bridges collapsing, the road to Gadani has been closed from Saturday onwards. No deliveries could be made since then. However, the strengthening of PKR motivated recyclers to compete with their neighbouring counterparts from Bangladesh and India to secure tonnage.

Major steel mills reduced prices by about USD 35/MT considering several factors like appreciation of PKR against the dollar, volatile global steel prices, political instability and low demand from the major steel consuming sectors.

A monetary policy announcement by the State Bank of Pakistan is expected on August 22, and the steel industry fears that higher rates will structurally damage the industry. The steel industry, which is capital intensive, is already facing severe liquidity crunch due to the worsening economic conditions, and the added difficulties of obtaining Letters of Credit for the import of raw materials and any further hike in interest rates may lead closure of small to mid-sized mills.

Lira plunged after shocking rate cut by Central Bank

Imported scrap prices stood flat whereas the domestic steel prices softened by about USD 15/MT after a decrease in interest rates and subsequent sharp depreciation of the lira mounted further pressure on steelmakers.

Turkey's central bank shocked markets on Thursday by cutting its main interest rate by 100 basis points to 13%, saying it needed to keep driving economic growth despite soaring inflation and a monetary tightening trend among its peers worldwide.

Turkey’s inflation for the month of July rose by 79.6% year over year, its highest in 24 years, as the country grapples with soaring food and energy costs.