Asia will soon be hit by a “steel tsunami," a veteran trader in Vietnam told Fastmarkets recently, with a combination of factors expected to keep prices high into the second and third quarters of 2021.
Looming China export rebate cut
The looming export rebate cut in China, possibly from 13% to 9%, is likely keep prices higher in the coming months, he said.
“We are already seeing this effect now, with India being the sole supplier of HRC to Vietnam,” he said.
Vietnamese buyers have no choice but to book HRC cargoes from major Indian steelmakers in the absence of supplies from China, because Chinese steelmakers have been hesitant about export cargoes ahead of the policy change, which has been heavily rumored to start on April 1 for all steel products.
Major Indian steelmakers have been keen to capitalize on this and have been steadily raising their offer prices on strong demand from regional buyers.
“The gap between Asia and Europe has to narrow, especially with European buyers willing to pay a premium for imported HRC,” a seller source in India told Fastmarkets on Friday March 26.
Buyers in north Europe have been purchasing HRC at €770-800 ($908-943) per tonne cfr, while buyers in Vietnam are purchasing at $805 per tonne cfr - a gap of around $103-138 per tonne.
There have also not been any wire rod or offers from China due to the possibility of a rebate cut, while Chinese mills are aiming for more than $700 per tonne for rebar exports to Singapore.
Soaring freight rates
Chinese sellers have been rushing to book vessels to carry their cargoes ahead of the impending policy change, causing freight rates to soar.
“Freight rates have increased so much that it is very hard to conclude any deals on a cfr basis,” a seller source handling South Korean HRC told Fastmarkets.
He said freight costs were about $60-80 per tonne to ship HRC from South Korea to Southeast Asia.
“This would make landed prices at around $860-880 per tonne cfr Southeast Asia if South Korean steel mills were to offer any HRC,” he said.
And the blockage of the Suez Canal has caused havoc, sparking rumors of fresh freight-rate hikes around the world.
“I expect freight rates to remain high in the second and third quarters of 2021. Shipping companies have already started to raise freight rates because global container trade flows have already been affected,” a ferrous scrap trader in East Asia said.
Tangshan production restrictions
The year-long production restrictions on errant steelmakers are expected to keep steel prices in China high for the rest of 2021.
A source at Tangshan Iron & Steel told Fastmarkets that HRC output in the city overall has fallen by around 30% in the past few weeks after the government ordered local producers to cut production.
On March 19, the local government in Tangshan ordered seven steelmakers - including Tangshan Medium Thick Plate Co and Hebei Xinda Iron & Steel Group Co - to halve their production from March 20 until the end of June, and reduce output by 30% from July 1 until December 31.
Sixteen other mills have also been instructed to cut production by 30% from March 20 until December 31.
A Shanghai-based trader said HRC output has fallen by that much, based on a survey by his company, which has bolstered HRC prices.
On Monday March 29, HRC prices gained 140-150 yuan per tonne after market participants sensed that supplies would be further limited.
Fastmarkets' assessment for steel billet domestic, exw Tangshan, Northern China was 4,780 yuan per tonne on March 29, up by 510 yuan per tonne from 4,270 yuan per tonne on March 1.
Rerolling mills are seeing good margins and have steady demand for billet while supplies are tight.
However, an industry analyst said: “Tangshan billet supplies may increase soon because of the high profit [margin] of around 1,000 yuan per tonne.”
Iron ore shortage
Operational issues and heavy rains in Brazil are affecting iron ore shipments, supporting higher prices for 65%Fe fines.
A trading source in Singapore said that seasonal rains in Brazil had affected the volumes of iron ore reaching the ports, resulting in fewer high-grade Iron Ore Carajas fines (IOCJ) shipments.
Prices for high-grade iron ore could also continue to remain high due to the profitable margins that steel mills are currently seeing from strong steel prices.
“We have recently seen a clear uptrend in the spread between 65% Fe and 62% Fe swaps contracts on the Singapore Exchange. The emissions restrictions in Tangshan pushed up demand for high-grade fines such as the IOCJ and iron ore concentrate despite the decrease in overall iron ore prices,” he said.
A recovery in demand in Europe, Japan and South Korea has also limited the supplies of high-grade iron ore bound for China.
A second Singaporean trader said that demand for iron ore pellet and lump will be supported because of the extended emissions restrictions imposed on steelmakers in Tangshan.
This is because the consumption for direct-charge raw materials, such as iron ore pellet and lump will increase.
Coking coal shortage
Overall supplies of domestic and imported premium hard coking coal have become increasingly constrained in China, supporting prices in the country.
Coking coal exports from Mongolia to China have also fallen sharply since mid-March amid the increasing number of Covid-19 cases in Mongolia, sources told Fastmarkets.
A local information provider in China said the number of daily coking coal trucks arriving in China from Mongolia had fallen from an monthly daily average of 331 trucks to just 30 trucks per day by March 25.
Mongolia was the second biggest supplier of coking coal to China in 2020 after Australia, supplying 24.21 million tonnes
The shortage has been exacerbated by coal mines in north China’s Shanxi province facing safety inspections in March. The government said on March 16 that it will carry out regular spot-check safety inspections on 21 coal mines throughout 2021.
Fastmarkets' price assessment for hard coking coal domestic China spot market, Shanxi-origin, delivered Tangshan was 1,315-1,690 yuan per tonne on March 29, up from 1,300-1,665 yuan the previous week.
Some local coke plants have adjusted their procurement activities for domestic and imported coking coal to control overall cost.
“We will compare all kinds of coking coal from Shanxi and Mongolia and try not to focus on one single product to achieve an efficient product portfolio,” a coke plant in Tangshan said.
Meanwhile, supplies of seaborne hard coking coal from North America have been limited in the cfr China market because most volumes have been allocated to term contract with buyers around the world. However, interest in coking coal from North American has been weak due to poor demand from steel mills in south China.