Steel News from YK-8.3

Export price for Chinese rebar to rise on strong local market

China / Long products

Export price range for Chinese rebar narrowed upwards and is set to rise further amid a local price surge supported

by output restrictions in Tangshan and Changzhou cities.

Exporters from China are quoting rebar at $550‑560/t FOB on theoretical weight basis ($569‑580/t FOB on actual

weight basis) versus $540‑560/t FOB last week. Besides, prices will keep rising as a number of steelmakers have

revoked the offers after a spike of domestic tags.

This week the steel market has got a strong impulse from regular steel mills operation cuts in Tangshan and recently

announced restrictions in Changzhou city, which effect was enhanced by robust demand for construction steel in China

despite hot weather. Tangshan billet gained RMB 90/t ($13.2/t) in a week, October rebar on the Shanghai Futures Exchange

soared by RMB 119/t ($17.5/t). It prompted local traders to lift rebar offers by RMB 105/t ($15.4/t) in the period.

The country’s major steelmakers, HBIS and Shagang Group, both hiked rebar price for early August by RMB 100/t

($14.7/t) compared to the previous ten-day period.

On the above, “export rebar price should rise by at least $10/t next week,” a trading source told Metal Expert. At the

same time, he added that business activity in the SE Asian market was low recently. “Customers from the region

possess enough stock level at the moment and are showing little interest in bookings,” he said. Besides, Chinese

suppliers are much more eager to sell in the local market rather than abroad due to higher margins and satisfactory

demand, participants say.

Iron ore changes slightly on weak demand, stable steel

China / Iron Ore

Iron ore moved up slightly on improved futures, but the demand stayed close to zero in the seaborne market as a

result of numerous production curbs in China. Steel tags were mostly unchanged during the day, and insiders do not

expect prices to change much soon.

Australian iron ore fines 62% Fe inched up by $0.1/t to $66.3/t CFR following almost the same increase in September

contracts on the Dalian Commodity Exchange. However, the improvement was reflected only in offers as steelmakers

were avoiding deals for the second consecutive day. “Many mills do not want to stock high volumes because new production

cuts may be announced again,” a market source told Metal Expert, adding that trading at ports was somewhat

better, with producers buying the raw material for current needs.

Participants predict the quotes to stay at approximately the same level in the short term. On the one hand, steel market

remains strong owing to reduced supply and unusually high demand for finished products. But this week traders’

inventories of five major steel products showed a minor increase (by 1.1%), and, moreover, market sentiments were

hit by escalating US-China trade conflict. “What that means for commodities… is that price rallies do not have a real

chance of taking root,” Reuters cited INTL FCStone commodity consultant Edward Meir.

Tangshan billet quotes were stable at RMB 3,840/t ($563.5/t) EXW on Thursday, while October rebar on the Shanghai

Futures Exchange posted an insignificant downward change.

Shagang lifts local longs prices for early-August sales

China / Long products

China’s largest private steelmaker and top longs producer Shagang Group increased sales prices for August 1‑10 due

to sufficient local demand and steel production restrictions in Jiangsu province and Tangshan city.

On August 1, Shagang Group announced domestic prices for its long steel products in early August. The manufacturer

will sell 16‑25 mm HRB400 rebar at RMB 4,350/t ($638/t) EXW, up RMB 100/t ($15/t) compared to the previous 10-day

period. 6.5 mm HPB300 wire rod price will be RMB 4,480/t ($651/t) EXW, up RMB 50/t ($7.2/t), Metal Expert learnt.

Local tags added RMB 100/t ($15/t) and RMB 50/t in late July after a decrease in mid-June. The reason Shagang kept

increasing prices in early August was sufficient sales during the previous ten-day period and a possibility of supply

tightening due to steel production restrictions in Changzhou city, Jiangsu province. According to the draft document,

certain local manufacturers must reduce operations at sintering machines, shaft and blast furnaces by 10‑50%. The

daily effect from the new initiative is evaluated at 30,000‑70,000 t, Metal Expert reported. New restrictions might influence

the operations of Changzhou-based Zenith Steel Group.

Local authorities in Tangshan, Hebei province, started a new round of restrictions, which led to reduced supply and

helped southern mills to keep prices high while expecting more orders from northern cities. Thus, the other top longs

makers in Jiangsu province – Yonggang Group and Zenith Steel Group – lifted prices for rebar and wire rod for early

August by RMB 60‑100/t ($9‑15/t) on average to RMB 4,350/t ($632/t) EXW and RMB 4,600/t ($668/t) EXW respectively.

Shagang Group is likely to increase prices further this month. The stocks of wire rod and rebar at mills decreased over

the last week, signaling about still strong demand, according to Mysteel data.

NSSMC’s profit down 17% in steel segment on high production costs

Far East / Flat Products

Nippon Steel and Sumitomo Metal Corporation posted lower profits in April-June due to higher production costs despite

improvement of output and sales volumes. Moreover, some further decline is expected in July-September.

NSSMC expects to benefit from the consolidation with Sweden manufacturer of special steel Ovako, which became

its whole-owned subsidiary on June 1, and Sanyo Special Steel which will became a subsidiary in March 2019.

Zenith Group plans to relocate manufacturing facilities to coastal area

China / Long products

Zenith Steel Group, one of the leading longs producers in Jiangsu province, makes first steps to relocate its facilities

to coastal area aiming to reduce transportation costs and to operate in the area, in which the concentration of plants

will be not so high.

Zenith Steel Group (Zenith) signed a cooperation agreement with Nantong city authorities on July 30. The company

plans to relocate its manufacturing facilities to Tongzhou Bay, Nantong city (Jiangsu province). The project is in the early

stage and details are unknown yet. Zenith is the biggest steel producer in Changzhou city with around 10 million tpy

of steel capacity, as Metal Expert reported earlier.

Zenith is now located in Changzhou city, at close proximity to the residential areas. In late July, city authorities introduced

a new round of production cuts. The government aims to reduce air pollution emission in cities due to increasing

environmental pressure. Thus, operations at sintering machines, shaft and blast furnaces will be reduced by 10‑50%.

Meanwhile, the company keeps upgrading manufacturing facilities to meet ultra-low emission standards. Zenith plans

to finish its sintering machines upgrading and to reduce PM2.5 level, sulphur dioxide and nitrogen oxide emissions

to 10 micrograms/cu m, 35 micrograms/cu m and 50 micrograms/cu m, respectively before September this year, said

chairman of Zenith Steel Group Dong Caiping.

Besides, by relocating manufacturing facilities closer to ports the producer will reduce costs for raw materials and

finished products transportation.

Vietnam’s car output 10% higher in January-July

South East Asia / Flat Products

After weak results seen over the last two decades, Vietnam has started to develop its automotive industry, posting

better performance in January-July 2018. This is providing additional support to local steel manufacturers.

In January-July, vehicle production in Vietnam increased by 10% to 140,800 units year-on-year, according to the Ministry

of Industry and Trade (MOIT). Production growth was supported by stronger demand in the local market.

MOIT submitted solutions to support Vietnam’s auto industry, namely to increase the volume of the domestic market,

support the domestic assembly enterprises and enlarge the investments in large-scale production projects, as Metal

Expert reported earlier. Besides, MOIT is to encourage investments from automotive corporations from Russia and

East European countries, Italy and France. Furthermore, vehicle production is predicted to reach 531,585 units by

2025 and 1.77 million units by 2035, Metal Expert learnt.

In brief: South Korea cuts tax on cars purchases

Far East / Flat Products

The government of South Korea announced a cut of tax on cars purchases from 5% to 3.5% on July, 30, which will

lead to reduction of final price on vehicles. The new rule will work till the end of this year. The policy is aimed to boost

economic growth in the country by providing increase of domestic spending by 0.1‑0.2 p.p. and benefits for consumers

and components suppliers. As a result, cars sales in the country are likely to rise, supporting flats steel demand from

the automotive sector in South Korea. Notably, in June, five largest automakers in South Korea sold 131,827 vehicles

in total, a 5.7% decrease year-on-year.

Indian and CIS billet suppliers most active in Southeast Asia

South East Asia / Steel Semis

Billet prices in Southeast Asia are still almost unchanged compared to the previous week but demand improved a

bit owing to better situation in the rebar segment in some countries of the region. Customers started to receive more

offers for Indian and CIS material. Rare bookings were heard from the newcomers.

High-grade billet made from EAF or BOF steel are still within the range of $540‑550/t CFR. Russian semis were booked

to the Philippines and Indonesia at $542‑545/t CFR. Most offers for billet from Kazakhstan and Russia (even from the

Black Sea) are still at $545‑550/t CFR. Buyers are pushing prices down but suppliers are not ready to give discounts.

An Indian supplier opened a tender for billet supply to Asia. Offers from traders are at $500/t FOB ($535/t CFR). But

the tender has not been closed by the time of the publication of this article.

Customers from Thailand are showing more interest in purchases. Sales of about 20,000 t of billet from Russia were

heard at $538‑540/t CFR late last week. “Domestic demand for rebar in some countries, including Thailand, started to

increase. And now customers, who were bidding not higher than $535/t CFR before, accepted higher prices,” a major

Asian trader told Metal Expert. Rebar tags in Thailand have added $15/t recently, according to local sources.

The newcomer in the market, Malaysian Alliance Steel, is also offering billets. There are rumours that the supplier sold

a batch to Thailand at $535‑538/t CFR, which was assessed by most market participants as not a market price as there

are no other exporters ready to give this price. Currently, Alliance Steel has limited monthly billet volume available for

exports, which means such a low price will not be seen in the market soon.

Some Indian exporters are actively offering billets made in induction furnaces at $530‑540/t CFR with deals being

concluded at $530‑536/t CFR Manila last and this week. Vietnamese semis from induction furnace-based mills are

being offered at $535/t CFR.

Further market transformation on horizon for CIS billet suppliers

CIS billet producers have been strongly performing in the international market this year, supported by good demand

on key consuming destinations – MENA and Southeast Asia. Moreover, mills hope to benefit from the US sanction

against Iran as it could open more supply opportunities for them. However, the market situation needs to gain some

clarity which is expected to happen in the coming months.

Since China had left its aggressive export policy in the billet segment back in 2016, Iran, which has been rapidly

increasing overseas presence, has become the second largest source of billets for the international buyers after the

CIS. “With Iran selling mostly to the GCC and Asia, while CIS to Turkey and North Africa, we cannot say they compete

indeed. But lately Iran has been expanding sales to Africa as well,” a trader told Metal Expert. Renewed sanctions issue

against Iran could create some opportunities for the CIS billet exporters as a part of the supply could be temporarily

eliminated from the market, while the requirement will still be there. Forecasts on Iran situation are different, with some

expecting sales to lose 60‑70% of the recent volume. Even in that case, CIS might not be the only beneficiary. Turkish

or GCC mills can easily increase billet exports again, especially if the prices increase, Metal Expert estimates. In the

meantime, most sources believe that the trade with Iran will not be discontinued completely, but it is hard to estimate

a possible export volume.

MENA is the main destination for the CIS billet sales (2.3 million t, up 10% in H1 2018), Metal Expert estimates. Turkey

remains the key consumer, but possible limitations to be put on Iran will hardly open any new opportunities for the CIS

there. “Most Turkish mills prefer not to touch trade with Iran, so it has been CIS anyway. In addition, Turkish rollers turn

more to the local billet trade, while steelmakers compare numbers – to produce semis or to buy,” a source noted. It is

also worth mentioning that billet requirement in Turkey will hardly increase over the coming years as no sizeable rolling

projects have been announced. Moreover, with the EAF installations plans at Kar-demir and Mescier, the demand for

billet in Turkey could significantly decline in the medium term, as Metal Expert reported earlier.

The situation in North Africa is somewhat different. Egypt continues to be the most popular sales destination for CIS

billet suppliers in the region, despite the fact that Iran has also managed to become a regular seller with an average

volume of 50,000 t per every one and a half month delivered through trading sources. Taking into account freight disadvantage

and a possible worsening of the payment issue, some customers might prefer to be on the safe side dealing

with the CIS, with Turkey being also an option. “Turkey does not have to sell, so they will be there only when the price

is right or local market is stalled,” a trader opined. CIS suppliers strengthened their positions in Egypt in H1 2018,

exporting almost 820,000 t, 4% more compared to the first six months of 2017, according to Metal Expert estimates.

Algeria, where billet requirement was rapidly increasing over the past years die to capacity expansion, might be gradually

decreasing imports from 2019 as the country’s own steelmaking is set to rise, as Metal Expert reported earlier.

The CIS suppliers have also changes to expand presence in the GCC after the sanctions, but they are smaller than

in case of Africa. Over the past years, Iran has completely squeezed out competitors from Oman and the UAE owing

to close proximity and well-established cooperation. Most players believe the trade will continue even in spite of the

sanctions, admitting though that the volume could decline substantially. According to some Emirati mills, CIS will be

the next best option; however, more active billet trade within the region is also possible. “Jindal [Oman] could be selling

from time to time, Bahrain too. Also, KSA is very active in billet sales to elsewhere, so why not to the GCC?” a trader told

Metal Expert. In the meantime, China, taking into account still high prices, considerable freight rates and sometimes

inconsistent performance, is a considered option, but as a least desirable one. GCC countries bought 1.4 million t of

billet in the spot market in H1, according to Metal Expert Billet & Longs Datastream. Of that volume, around 750,000 t

was from regional billet producers, while Iranian suppliers sold around 540,000 t. CIS mills shipped just minor volumes.

Markets of Southeast Asia have been one of the main playgrounds for Iranian mills, although there is a limited number

of customers who are ready to deal with them on financial and political issues. Iran’s sales to Southeast Asia were

around 600,000 t in H1 (sales through the UAE or Oman hubs are not included), while the CIS sold 1.2 million t. In

theory, CIS mills, including those shipping from the Black Sea, could increase sales volumes if shipments from Iran to

the region are disturbed. Notably, the billet price should be high enough to offset high transportation costs if shipping

from the Black Sea ports, but combining the cargoes with other steel products to the GCC or to Asia would be a more

viable option, Metal Expert understands. As a result, there could be a chance for a stronger cooperation between CIS

sellers and Asian buyers. Yet, there is a strong possibility the GCC mills (Qatar, KSA, Bahrain, Oman) will interfere.

“GCC has an advantage of good freights and shorter sailing time, their material is well accepted,” a trader told Metal

Expert. Supplies from Turkey is also an option; the intraregional billet trade can neither be disregarded.

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