With commodities as a whole experiencing a bearish 2015, many have turned to steel as the obvious scapegoat for the price declines. But despite overcapacity and slumping prices, don’t expect miners and producers to cut supply just yet.
According to a report this week from Bloomberg Business, a Macquarie commodities analyst traveled to China to better gauge the steel industry and the steps it has taken or will take to offset slumping prices, and the results were underwhelming.
Want a short- and medium-term buying outlook for aluminum, copper, tin, lead, zinc, nickel and several forms of steel? Subscribe to our monthly buying outlook reports!
“The bank has previously highlighted the steel industry as a poster child for commodities woes, with particular emphasis on overcapacity in China,” wrote Tracy Alloway for the news source. “In the face of slumping metals prices, the pressure is on miners and producers to cut supply. Unfortunately for global commodities prices, a chunk of the world’s metals producers seem reluctant to do so—even in the face of losses.”
The reason for this? Leveraging alternative solutions to offset losses, including encouraging traders to prepay for their buys and attempting “VAT evasion among small and private mills,” the news source states.
The Outlook for Steel, Long-Term
We recently reported that most steel buyers look at short-term steel cycles to gauge where the market is. However, it can be beneficial to look at long-term cycles, and to do that we have to study history. Based on previous cycles, we could be facing 15-20 years of stagnation and decline centered around mill closures, low prices and job losses. Judging from the same history, however, the light at the end of the tunnel shines on new and improved steelmakers and minimills.
How will steel and base metals fare for the remainder of 2015 and into 2016? You can find a more in-depth steel price forecast and outlook in our brand new Monthly Metal Buying Outlook report. For a short- and long-term buying strategy with specific price thresholds: