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Trade Review: Indian HRC to stay competitive, China eyes recycled steel imports

Seasonal uptick in demand during spring season, post China's Lunar New Year holidays indicates a positive outlook for Asia's hot-rolled coil, rebar and ferrous scrap markets, which were characterized by subdued and sluggish trade during October-December 2021.

Indian HRC to stay competitive in Q1

The market trend for Asian hot-rolled coil is expected to shift in the first quarter of 2022 as sentiment among Chinese market participants is likely to turn positive after the Lunar New Year celebrations with an improvement in demand and steel output restrictions.

Both China and India were active participants in the spot HRC market in the last quarter of 2021, as evidenced by bids and offers for SAE1006 coils compiled by S&P Global Platts during the Market on Close assessment process, even though Indian offers were more competitive from December onwards. This was in contrast with the previous two years, when supply from just one of these two origins dominated the market.

In Q4 2021, prices of rerolling grade HRC in Southeast Asia dropped 13.4% from $868/mt CFR Vietnam on Oct. 1 to $751/mt on Dec. 31, with the decline from November onwards attributed to weakness in the Chinese domestic market. This is expected to reverse in Q1 2022.

Market participants see factors such as environment-related output restrictions, a looser monetary policy aimed at stabilizing the economy and an uptick in demand during spring, especially the recovery of the real estate sector, to help support Chinese domestic prices in Q1.

In India, offers for coils are likely to become competitive over April-May 2022, at the start of a new financial year, a traditionally slow season. Prices in the Indian domestic markets have slid considerably in Q4, even though mills are of the opinion that Q1 2022 may not see the same fate, with government-led infrastructure projects being expedited ahead of the close of the financial year in March and the Union Budget in February.

Nonetheless, bullish factors can remain fluid given uncertainty surrounding the global spread of COVID-19, which is likely to dampen industrial activity in several importing countries and hurt the interest of major exporters, including Japan, South Korea, China and India.

Recycled steel imports bid-offer spread narrows

China's demand for seaborne recycled steel was subdued in Q4 2021, as depressed domestic prices weighed heavily on mills' buy indications. Spot recycled steel trades to China were few, with Platts observing 19 bids, offers, trades and indications in December, as compared with the peak 134 in March 2021.

The bid-offer spread, however, narrowed to $15-$30/mt from the previous high of $100/mt in July, as prices of Japanese HS grade tumbled on weak domestic demand. At the same time, the premium HS grade over H2 grade also retreated to its usual range of Yen 2,000-3,000/mt ($17.50-$26.20/mt) in December 2021, from the August peak of Yen 14,500/mt.

The narrowed bid-offer spread rekindled Chinese mills' interest in imports, which may continue into Q1 2022 and translate to more imports. Nevertheless, Chinese buyers were cautiously in the look out for signs that could determine market direction after the Lunar New Year celebrations and the Beijing Winter Olympics.

In Japan, prices in the domestic market continued to rise above those of the export market, with domestic mills paying a premium of up to Yen 7,000/mt over overseas buyers in December. Concurrently, scrap demand and buy indications in East and Southeast Asia were suppressed following the slump in Asian billet prices in mid-October.

The gap between the buy and sell sides curbed export business such that the monthly Kanto Tetsugen export tender failed to award cargoes in November and December, a rare outcome that last occurred in 2008.

The market's expectations for seaborne scrap demand were mixed for early 2022, with some improvement anticipated after the Lunar New Year when construction demand usually returns in China and Vietnam. But should billet prices remain low, leaving mills' melt margins in negative territory, scrap prices would be expected to trend lower.

Chinese rebar price likely to strengthen in Q1

Given China's lackluster demand for rebar during the seasonally weak Q4, rebar and billet spot prices dropped significantly. Platts had assessed spot Beijing rebar 21% lower, Jiangsu rebar down 19%, and Tangshan billet down 18% in Q4 2021.

The sharp decline in China's physical and futures markets affected seaborne prices and sentiment. Import billet sales to China declined significantly in Q4 on concerns over uncertain market trends.

However, steel supply would likely be crimped this quarter due to concerns over environmental protection and low carbon constraints ahead of the Beijing Winter Olympics. China's National Development and Reform Commission said the country would actively promote and accelerate major regional strategies, new-type urbanization, public services and infrastructure construction, which will continue to stimulate investment demand. Steel demand growth is expected to gradually resume in Q1, which could lead to a temporary imbalance in supply-demand fundamentals.

Singapore's rebar demand would likely increase gradually in Q1 with the resumption of some projects which had been delayed since 2021. Domestic construction steel demand in South Korea, India, Vietnam, are also showing signs of a recovery.

If market fundamentals remain stable, some market participants expect regional demand recovery to continue into Q1. And should rebar and billet supply tighten in the seaborne markets, China would return to importing billet in the coming quarter.

Source: S&P Platts

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