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US trade defense could hit Asian steel prices

Feb 26, 2018 | 04:32 PM | Singapore | Fiona Lam

Tags  China steel, Southeast Asia steel, Vietnam steel, flat steel, long steel, hot-rolled coil, rebar


Asia-origin steel commodity prices could remain elevated for April- and May-shipment cargoes, although this will depend on further policy changes in China and the United States, market sources told Metal Bulletin.

Bullish sentiment on near-term spot prices is prevalent because production cuts in China could be extended into May-June.

“Many market participants think that prices will retain support for now because production cuts could be extended to mid-May,” a key Japanese supplier of flat steel products said.

Chinese steel mills could reduce their utilization rates to an average of 80% no earlier than June because steelmakers will try to increase their output of construction materials to feed downstream demand, major commodities producer BHP Billiton said in a forecast.

But this does not take into account the possibility of further cuts through year-end, with the key steelmaking city of Tangshan said to be gathering feedback on the likely effects of production restrictions being in place until December.

The second quarter is China's peak building and construction season, and favorable domestic markets in South Korea and Japan are also expected to boost demand. Some sources expect tight supply of flat steel in Asia due to fewer exports from these three major steel-producing areas.

In China’s rebar market, most participants are bullish on prices for the coming two or three months due to production restrictions and expectations that demand from the construction sector will go into full swing. But prices could remain at current levels for the next few weeks before rising due to the high level of inventories, which will take some time for markets to digest.

Metal Bulletin's fob China rebar index was stable in the first two days after China returned from the Lunar New Year holiday, at $553.75 per tonne.

“The general price trend for rebar is expected to move upward in the next two or three months,” a trader in eastern China said.

General bullishness
Traders and end-users in Southeast Asia’s billet markets are generally bullish on prices due to tightening supply and depleting inventories despite persistently stagnant demand in the local markets for finished long steel products.

Japanese mills last week withdrew their billet offers from the spot market and delayed the timing of sales because they believe prices will increase, a major South Korean trader said.

“Some end-users in the Philippines are starting to increase their bids because they need material and also expect prices to go up,” this trader said.

In Indonesia, buyers were not interested in the high billet offers heard at $550-555 per tonne cfr last week. “But sooner or later, some will give in and accept those price levels,” an Indonesia-based trader said.

Flat steel buyers in Vietnam largely expect prices to continue on an upward trend due to reduced volumes from key hot-rolled coil suppliers in China, Japan and South Korea.

Traders expect spot negotiation values to increase further due to talks about extended production cuts in China as well as returning demand from downstream rerollers and pipe producers after the Tet holiday, which is Vietnam’s new year.

“Official production cuts may be extended to mid-May. Other parts of China, such as the key steelmaking city of Tangshan, may also impose their own restrictions on their steel mills until the end of the year,” a Chinese trader said.

Metal Bulletin's fob China hot-rolled coil index has inched up since China returned from the Lunar New Year holiday, to $593.94 per tonne on February 23 from $592.83 per tonne on February 22.

Section 232’s ripple effect on Asia steel
But bullish sentiment is being tempered by the possibility that the US will impose high import tariffs on Asia-origin steel based on the Commerce Department's recommendations in its Section 232 report.

Northeast Asia’s three-largest steel producers will be affected by the US tariffs if they are implemented.

China and South Korea are among 12 countries being threatened with 53% import tariffs by the US, which is seeking to protect its domestic steel industry on national security grounds, while Japan is susceptible to a global tariff of 24%.

Those countries’ export volumes to the US could be restricted to 63% of 2017 volumes, resulting in the availability of surplus material that would need to find sales outlets elsewhere in the global market.

China exported 1.18 million tonnes of finished steel to the US in 2017, on par with the 1.17 million tonnes shipped in 2016, according to China customs data. The East Asian country’s export markets were not expected to suffer directly from high US import tariffs, if they are implemented, because less than 1.6% of China’s total export volumes went to the country in 2017.

But the indirect effects of the tariffs will have a far larger effect if other countries reduce demand for China-origin steel substrate used to make their own export products.

For example, South Korea was the single-largest importer of Chinese steel in 2017, taking in 11.4 million tonnes.

“High tariffs on South Korean products will lead to lower consumption of China-origin steel because South Korean mills process Chinese substrate into finished products before exporting them to other countries, including the US,” a trader in eastern China said.

US President Donald Trump has until April 11 to announce his final decision on trading sanctions.

“Regardless of the final decision, it is likely that trade flows in Asia will see some changes,” a trader with detailed knowledge of the Asian flat steel markets said.

Gladdy Chu and Jessica Zong, Shanghai; and Paul Lim, Singapore, contributed to this article.



 

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