Highlights of the Week

The global economy is on a knife-edge and it seems hard to avoid a recessionary phase given that the latest inflation figures came in hotter than expected, increasing pressure on the Central Banks around the world to raise interest rates. While each region and industry has slightly different macroeconomic dynamics, none of them appear bullish right now, making it difficult to locate a hard bottom for steel prices. Under these uncertain conditions combined with the pressure of depreciating currencies in all major ship recycling destinations, the recyclers are not able to offer prices that meet the owner's expectations and attract tonnage. There has been virtually no activity in the recycling market for over a month, and with the current economic situation, it is difficult to predict when the recycling market will emerge from this hibernation!

The Euro briefly dropped below parity against the dollar on Wednesday, its lowest level since December 2002, as a hawkish U.S. Federal Reserve and growing concern about rising recession risks in the Euro area continued to batter the currency. The Euro’s slide is a tricky dilemma for the ECB because allowing the currency to fall fuels the record-high inflation which the ECB is battling to contain, but trying to shore it up with higher interest rates could aggravate the recession risks.

Europe's worst nightmare is now becoming a painful reality as maintenance work begins on the Nord Stream 1 pipeline that brings gas from Russia to Germany via the Baltic Sea. Europe fears the suspension of deliveries could be extended beyond the 10-day timeline, derailing the region’s winter supply preparations and exacerbating a gas crisis that has prompted skyrocketing energy bills for households and emergency measures from policymakers.

As the G20 finance leaders and central bank governors gather in Indonesia today for a 2-day meeting, the world is watching for solutions and expects a more coordinated international action which is urgently needed to avert the energy and hunger crisis.

The International Monetary Fund on Tuesday again cut its growth forecast for the United States to 2.3% for 2022. IMF Head believes "It's going to be a tough 2022, but maybe even a tougher 2023".

INR hits record low

The sentiments of end buyers have been weakened by the continual drop in currency, seasonal downtrend in steel demand from domestic market due to heavy rainfall across many regions and falling steel exports due to the levy of 15% export duty.

Indian steel manufacturers have undertaken maintenance shutdowns/running under reduced capacities a couple of months ahead of schedule because of slow demand in both overseas and domestic markets. Thus, Indian crude steel production may drop 10-15% this month.

The rupee keeps hitting fresh lows against the US Dollar as a global wave of risk aversion led to capital flowing out of emerging markets to the safety of the greenback. India’s foreign exchange reserves dropped to their lowest in 15 months as the central bank probably stepped up its intervention to support the rupee that is testing new lows amid foreign capital outflows and high commodity prices.

Increased monitoring for opening Letter of Credit

The Eid holidays have kept the market largely muted this week. Market participants are expected to wait-and-watch till next week for a clearer price direction.

The Bangladesh Central Bank has instructed banks to report to the money market regulator prior to opening a letter of credit for imports worth USD 5 million or above amid the ongoing dollar crisis.

The Bangladesh Bank has again depreciated the interbank exchange rate by Tk0.50 to Tk93.95 against the US dollar amid the volatility in the country's foreign exchange market. To cover import costs after the just celebrated Eid-ul-Azha, the central bank on Wednesday sold USD 97 million at the new rate.

Improvement in imported scrap offers

The market in Gadani remained inactive since last weekend due to the festive occasion of Eid-ul-Adha. Though there has been a slight improvement in offers from suppliers for imported scrap, we need to wait until the market fully reopens on Monday to gauge the sentiments of the recyclers.

Due to the ongoing heavy rainfall in the northern regions of Pakistan, many small-sized mills have reduced or ceased their production, which may have a positive impact on the short-term rebar offers.

After four rounds of massive hikes, Pakistan government slashed the price of petrol by PKR 18.50/litre and diesel by PKR 40.54/litre effective from Thursday midnight.

The rising cost of LNG, largely due to the EU attempting to wean itself off Russian gas, has led to severe energy shortages with blackouts in many regions extending for up to 16 hours a day.

Annual inflation hits highest level in 24 years

One Cruiseship of about 8,700 LDT has arrived in Aliaga this week.

The Turkish imported scrap market stayed quiet this week as most steel producers remained out of the market during the Eid holidays.

The Turkish Lira dropped to 17.5/USD this week for the first time since December 2021, after the United States reported a surge in inflation, increasing the likelihood of more substantial rate hikes by the Federal Reserve.

The annual inflation rate in Turkey was 78.62% for June, according to the Turkish Statistical Institute, surpassing forecasts. That’s the country’s highest annual inflation reading in 24 years. Soaring consumer prices have hit the population of 84 million hard, with little hope for improvement in the near term as a result of the Russia-Ukraine war, high energy and food prices.