Asian steel mills are set for a tough second quarter with potentially frail China consumption and increased output, but there is some optimism that demand will rebound around May thanks to an expected recovery in Chinese property sector.
“China’s steel market in the April-June quarter looks set to be weaker than widely anticipated, due in large part to downstream demand not strong enough to absorb the high level of steel the country is currently producing,” said Paul Bartholomew, lead metals analyst at S&P Global Commodity Insights.
The prices of Asian SS400 HRC rose to $663/mt FOB China March 31 from $592/mt Jan. 3, before easing to $620/mt FOB China April 17, according to Platts assessment by S&P Global.
“China’s real estate, automotive and appliances sectors are weak, but mills continue to increase steel output,” a Chinese mill source said.
The country’s March daily crude steel output rose 4.4% from February, data from China Iron & Steel Association showed.
“As long as mills have profits, they won’t voluntarily cut production,” a Chinese trader said.
S&P Global analysts have lowered their Q2 price forecasts for China domestic HRC by around 10% at Yuan 4,083/mt.
In 2023, China is expected to add $118 million mt/year of new crude steel capacity on stream via capacity swaps, S&P Global data showed.
Over in Vietnam, the buy-sell expectations gap widened due to the persisting weak demand.
Hot rolled coils SS400 CFR Vietnam price was below FOB China in Q1, as buyers focused on lower-priced domestic stocks and sought cheaper offers from Chinese traders while following a hand-to-mouth procurement strategy.
The spread between SS400 CFR Vietnam and FOB China widened to $35/mt March 31 from $2/mt on Jan. 3, with Vietnamese prices being cheaper compared to Chinese, according to Platts assessment by S&P Global.
And market sources expect this trend to continue in Q2 as the rainy season in Vietnam will cap demand.
Going into the April-June quarter, higher raw material costs are likely to cap any sharp downside in HRC, market sources estimate, with some even hopeful of a rebound in May on optimism over potential stimulus measures in China.
Chinese billet exports to pick up
Billet prices rallied in Q1, as the earthquake in Turkey spurred demand for seaborne semi-product in February.
Platts assessed billet CFR Southeast Asia at $608/mt on March 31, up from $565/mt on Jan. 3, S&P Global data showed.
China’s export parity of billet stayed positive in Q1, making it profitable for exporters to keep exporting, and market participants see exports to grow further in Q2.
Platts calculation of the China billet export parity deducts export cost and daily ex-stock Tangshan billet price from the daily billet CFR Southeast Asia price. It also accounts for the conversion from Chinese Yuan to the US dollar for the China domestic price. The calculation does not include freight rates.
Whenever a positive export parity emerged in China, the largest exporter of billets raised its exports two months later, as shown in the graph below, based on S&P Global data.
Several Asian countries are likely to export more in Q2 on easing domestic consumption.
Indonesia, Vietnam and the Philippines are seeing a slowdown in property sales with financing costs rising. Meanwhile, Thailand is holding elections next month, India will witness the onset of monsoon in May while the Muslim holy month of Ramadan draws to an end in the Middle East in April.
“All these factors will lead to a surge in supply in Southeast Asia, while [some] blast furnaces in Vietnam are restarting in May,” a Singapore-based trader said, adding that “the overall export quantity in APAC [Asia-Pacific] will rise sharply in Q2.”
China is also feeling the heat of surging inventories, with some mills seeking export opportunities, a Chinese trader said.
Until the beginning of 2022, Indonesian billet exports held a positive correlation to Chinese exports, but the dynamics seem to have changed, with Indonesian sales tracking the seaborne market more closely than the Chinese domestic market since last year.
Volatile Q1 scrap prices, muted demand harbor uncertainty
Asian seaborne scrap prices are staring at an uncertain Q2 after sharp price swings following the Turkish earthquake, and a lackluster downstream market in key importing countries of Vietnam and South Korea.
S&P Global analysts expect Turkey ferrous scrap import prices to average $380-$385/mt CFR in Q2, lower than previously thought, as Turkish demand softened faster than expected.
“This will likely put pressure on Asian scrap prices in the current quarter,” said Bartholomew of S&P Global.
The H2 FOB Japan scrap prices rose 4.25% to Yen 51,400/mt in the January-March quarter, before easing to Yen 49,300/mt on April 12, S&P Global data showed.
“Mills are increasing domestic scrap ratio by keeping away from import market,” a South Korean mill source said.
But, according to market sources, domestic scrap in South Korea and Vietnam is not sufficient to completely do away with the need for imported scrap.
Post time: Apr-24-2023