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TRADE REVIEW: Q3 steel exports seen faltering as Asian demand wanes; scrap outlook subdued

Weak Asian demand and sluggish global consumption due to a slowdown in infrastructure activities could drag down China's steel exports in the July-September quarter, as buyers battle with inflation while order inflows remain patchy.

"We expect [China's] steel exports to be slightly softer over the second half as crude steel production is reduced. Demand from key customers such as South Korea and Vietnam has been softer due to their own economic challenges and weaker exports of manufactured goods," said Paul Bartholomew, lead metals analyst at S&P Global Commodity Insights.

"We think steel consumption from property construction will be down almost 6% this year as consumer confidence is slow to return despite government efforts to stimulate the housing market."

According to a survey of eight major mills in China by S&P Global, June exports are likely to drop 18.8% from May while July exports may decline another 8.8% from June on weighted average basis.

This would translate to June steel exports of 6.43 million mt and July volumes of 5.86 million mt, according to S&P Global calculations based on the survey data.

The estimated July exports would be a sharp retreat from China's five-year high of 8.356 million mt in May 2023.

"The mills' sentiment has changed as the Chinese domestic demand turns weak, mills are offering [longs and flats for exports] at an equivalent level to domestic prices," said an east China trader.

Despite poor domestic steel demand and falling Chinese steel prices following Yuan's depreciation against the US dollar, export volumes are edging lower as global demand is shrinking.

"The fading demand for Chinese construction steel dragged by weaker property market in Southeast Asia, expected rate hikes by US Federal Reserve later this year don't bode well for Chinese billet demand, but HRC demand that represents manufacturing sector is more resilient," a Singapore trader said.

China's HRC market stable, India domestic HRC weak

Asian hot-rolled coil prices rebounded in June after nearly three straight months of decline.

Asian SS400 HRC prices fell $146/mt from its year-to-date high of $672/mt FOB China March 17 to $526/mt June 1, before rebounding $19/mt to $545/mt June 30, according to Platts assessments by S&P Global.

According to multiple sources, trade activity in the Chinese HRC export market in June was either as weak as May, or just slightly better.

Most sources expect China HRC prices to be rangebound in the short term, with little room for a rise. Demand from China and overseas markets has not improved but the market continues to expect Chinese stimulus measures in the second half of the year.

In India, demand for hot-rolled coil is likely to wane further in the ongoing quarter following the onset of monsoon.

According to sources, the country may have signed contracts for delivery in July, which will help keep a check on domestic HRC prices.

Prices of HRC in the domestic market on ex-works Mumbai basis for 2.5-10 mm thick material on June 30 were assessed at Rupee 55,500/mt, down from the year-to-date high of Rupee 61,000/mt on Feb. 2, according to S&P Global data.

Sources expect domestic HRC prices to decline nearly Rupee 2,000/mt over the next two months. A Mumbai-based trader said that exports from India to markets such as Europe weren't picking up due to competitive offers from other regions.

A second Mumbai-based trader sees prices bottoming out from July onwards, as pent-up demand may resurface following thin trading over the last few weeks.

Asian scrap flows slow down, recovery seen in Q4

Asian scrap trade flows are expected to remain sluggish moving into Q3, as major scrap buyers saw a sharp dip in Q2 import volumes, with the US cargoes to Vietnam falling drastically.

Several obstacles to demand recovery remain, including weak downstream markets, power shortages in Vietnam, monsoons, and a wide Electric Arc Furnace-Blast Furnace production cost spread that favors Blast Furnace-Basic Oxygen Furnace.

However, sell-side resistance is increasing with Japanese H2 scrap price assessments by Platts rising towards the end of Q2 to Yen 50,400/mt FOB Japan June 28, up from the 2023 low of Yen 46,300/mt FOB May 17 and down from Yen 50,500/mt FOB April 5.

A recovery in prices was led by South Korea's steady purchase of short-sea scrap while Japanese scrap prices were boosted by a weakening Yen, which encouraged sellers to raise offers in both the Yen and US dollar terms.

"Downstream prices are going up amid governments cutting interest rates, but real demand is terrible. The main problem is financing and trust issues with the current state of market. It will take time," said a Vietnamese mill source.

Source: S&P Platts

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