Import prices for hot-rolled coil in Asia could exceed $1,000 per tonne in the coming months, key market sources in the region told Fastmarkets.
“Given the rate at which prices are increasing, I won’t be surprised if prices exceed or rise close to $1,000 per tonne in the remaining months of the second quarter,” a flat steel trader in Southeast Asia told Fastmarkets.
East Asian cargoes could be the first to sell at $1,000 per tonne, he said, especially with a major Japanese steel producer already selling high-grade HRC to an automobile producer in Indonesia at $910 per tonne cfr.
A major South Korean producer has offered May- and June-shipment HRC at $890 per tonne fob. This is equivalent to $950-970 per tonne cfr Southeast Asia after including the recent surges of $60-80 per tonne in freight rates. A major Taiwanese producer is offering cargoes at $900 per tonne cfr Southeast Asia, with “no chance of discounts.”
The China factor
The lingering uncertainty over whether China will reduce its export tax rebates for steel products – and when, if it materializes – has also bolstered prices.
Talk was rampant in the past week about China possibly implementing the rebate cuts from April 10. Market participants speculated that the 13% rebate for HRC might be completely removed while that for cold-rolled coil could be reduced from 13% to 9%; the rebate for hot-dipped galvanized coil is expected to remain.
A major flat steel trader in eastern China said Southeast Asia could soon be looking at prices of $900 per tonne for HRC if the export tax rebate is indeed removed.
Benxi Iron & Steel
“Taking into account offers of around $750 per tonne fob from mills such as from Benxi Iron & Steel, there would be an additional $100-per-tonne cost for buyers if there is no rebate,” he said. This is excluding freight costs.
Export trading activity involving Chinese flat steel has been limited in the past few weeks, with producers either hesitant to offer cargoes, or buyers unwilling to enter into negotiations. This is due to sales contracts being draw up to require them to shoulder part, or all, of the risks associated with any change in China’s export tax rebate.
Strong domestic demand in China has also been a big factor supporting flat steel prices in the country.
Chinese New Year holiday effects on HRC in Asia
Fastmarkets analyst Marina Maliushkina said underlying flat steel demand in China had been strong in the first quarter of 2021, and a steady decline in reported stock levels at producers that started immediately after the Chinese New Year holiday suggested that distributors had been in need of material, pushing up prices for flat steel in the country.
“Announced curbs on steel production in Tangshan, a major steelmaking hub in northern China, further tightened market fundamentals, and we expect that prices will continue to rise during the second quarter of 2021,” she said.
India steps in
Indian steelmakers have been quick to fill the supply gap left by Chinese mills, and have been raising their offers continually to capitalize as much as possible from the current situation.
Their latest offers this week are at least $845 per tonne cfr Vietnam due to brisk business there; at least two major mills have concluded transactions involving large quantities of HRC in the past few weeks.
“Asia needs to close the price gap with Europe, so prices are likely to continue to increase for now,” a seller source in India told Fastmarkets.
Optimistic sellers have raised their offers to as high as $850-900 per tonne cfr Vietnam.
Vietnamese buyers – mainly galvanized coil producers – have been left with little choice.
“Indian cargoes are the cheapest now, though their offers are climbing steadily. Vietnam has to buy HRC substrate to feed the booming galvanized coil export market,” a buyer source in Vietnam told Fastmarkets.
Vietnamese buyers are expecting to pay up to $835-840 per tonne cfr Vietnam to secure cargoes – a $25-30 per tonne increase from the last transactions heard at $810 per tonne cfr Vietnam last week. Spot price negotiations have been thin ahead of the anticipated change in China’s export rebate policy.
European shortage
European buyers have been struggling to secure enough HRC due to a combination of short supply from domestic mills and the impact of safeguard and anti-dumping measures in the region. As a result, domestic prices for the flat steel product have surged, though buyers’ chief concern is supply.
Fastmarkets calculated its daily steel hot-rolled coil index, domestic, exw Northern Europe at €836 ($983) per tonne on March 31, up by €16 per tonne week on week and up by €98 per tonne month on month.
HRC producers have their sights set on a price of €900 per tonne ex-work; they are likely to achieve this in transactions done in April, according to market sources’ estimates.
But the bullish trend in the EU is unlikely to allow India to sell more cargoes to the region, market sources said.
“India could have supplied more if there were no safeguard measures in place. Other traditional big suppliers, such as Turkey and Russia are subject to anti-dumping duties. But [the existence of] quotas [under the safeguard measures] do not allow the buyers to fill the gaps in their stock,” a Northern European distributor source said.
“Prices are very high, but the real issue is the availability of coil. Indian products were the cheapest in March due to lower domestic prices [in India], but access to such cargoes has been cut off by safeguard measures,” an Italian trader said.
EU’s second-quarter safeguard
As a result, European buyers were cautious about purchasing. They expect the EU’s second-quarter safeguard quota for India to be exhausted quickly because a big Italian buyer has booked more than 150,000 tonnes and some these will arrive in the second quarter, sources said.
In the first quarter, suppliers form India used up 99.7% of the country’s quota for HRC, according to data released by the European Commission. The April-June quota for Indian HRC is 162,982 tonnes, and market sources in Europe are concerned that it will be exhausted within the first couple of weeks in April.
In February, the EC said that it had started looking into the possible extension of the measures – imposed for an initial period of three years – against 26 steel product categories.
The measures expire on June 30.
European buyers believe that the measures are likely to remain in place, although they might be softened. Uncertainties over these have led buyers to avoid making deals with suppliers from India.
Rosy outlook for HRC in Asia
Both domestic and export prices for Chinese HRC could remain at historical highs throughout the rest of 2021, with limited downside on the horizon, Fastmarkets’ Maliushkina said.
“A softening of Chinese infrastructure investment drive will be partly offset by an expected rise in consumer spending on domestic appliances and other durable goods, providing support to flat steel demand in China,” she said.
At the same time, Chinese exporters of finished products, including metal-intensive industries such as white goods and machinery, will see more countries experience an economic rebound in 2021.
A Hong Kong-based trader believes HRC prices will be higher in the second half than in the first because most countries have started putting more focus on the construction of buildings and infrastructure as a means of bolstering steel demand.
“The future is rosier because more countries are relying on infrastructure to help revive their economies, which have been hurt by the Covid-19 pandemic,” he said.
“Even though China is slowing down on such measures, there are many other countries that will do so, for instance, the United States and its $2-trillion infrastructure development proposal. More countries in Asia will put forward such measures too soon, especially in the second half of this year,” he continued.
Source: Metal Bulletin