Quarterly Report – July 2019

The recent tanker incidents in the Gulf Region have created a conflict which could disrupt oil traffic in the key Strait of Hormuz - the narrow waterway through which about a fifth of the world’s oil moves, connecting producers such as Saudi Arabia and Iraq to international markets. If so, this could result in prices rising to levels rarely seen before.

The incident comes as tensions between Iran and the West have been on the rise. The UK stopped an Iranian tanker several weeks ago which, it says, was violating European law and allegedly carrying crude to Syria. After Iran seized British oil tanker Stena Impero on July 19 for alleged marine violations, and temporarily stopped a second one, oil prices moved slightly higher. This shows a definite correlation between political disturbance and steel prices.

Shippers will likely impose higher insurance costs to move tankers and any other metals, which means ferrous and steel prices will increase to cover these new costs resulting from the oil tanker incidents. Hence, they will need to factor in higher shipping costs when weighing up what product to buy.

A total of 12.2 million tons of iron ore concentrate was produced in Iran during the first Iranian quarter (March 21-June 21), equating to 4% growth when compared with the corresponding period of 2018. However, due to the current situation, it is still uncertain how production will be affected.   

The US-China trade war is threatening Indian markets as China looks for alternative outlets for its steel exports, according to India’s steel ministry. Faced with low exports and higher imports, the ministry has been pushing for higher import duties. Citing the threat from Chinese imports and excess global capacity, an internal note reviewed by Reuters shows that the ministry has sought an immediate increase in import duties on finished steel products to 15% from a range of 7.5% to 12.5%. Steel exports to the EU dropped 55% in May, led by reduced shipments to Italy, Belgium and Spain which made up around 80% of India’s overall exports to the region.

According to the World Steel Association’s Short Range Outlook of April 2019, global steel demand will reach 1.735 billion tonnes in 2019 for an increase of 1.3% over 2018. In 2020, demand is expected to grow by 1% to 1.752 billion tonnes. Growth across various industries such as healthcare and hospitality will be a key factor in driving demand for steel in the UAE, experts say.

The UAE’s Ministry of Energy and Industry has noted that its steel and construction industries have come of age over the years, and that this is exemplified by the number of complex projects and mega-structures successfully completed across the Emirates.