Steel News from YK-8.8

Power shortage in Hebei province affects steel production, supports steel price

China / Flat Products, Long products

Steel mills in southern Hebei were ordered to reduce operations due to the power shortage in the region. It has already

affected steel production and supported prices.

Housing and urban-rural development department of Hebei province announced the level‑2 power shortage alert on

August 3. The shortage in the power supply was caused by the high temperature in northern China and the heavy

power load. The province has thus adopted power-limiting measures. The measures will affect industrial companies

located in Baoding, Shijiazhuang, Xingtai, Handan, Hengshui and Cangzhou cities. Steel mills are restricted to operate

during peak hours to ensure power supplies for residential use. Therefore, they can only work from 11 p.m. to 7 a.m.,

which are off-peak hours.

The new measures have affected 2,700‑3,600 t of daily steel strip production, 6,200‑7,750 t of HRC, 9,200‑12,200 t of

plate and 10,000 t of wire rod output in Handan city, according to Mysteel information. The ironmaking and steelmaking

process might have little effect but the impact on rolling and refining process will be bigger. Up to 30% of output

has been affected by the rationing, Reuters reported citing a manager of Wu’an-based Yuhua Steel (5 million tpy). It

is unknown when the power rationing will end.

The power shortage and reduction of production as a result led to the steel price increase in China. Tangshan billet

prices added RMB 50/t ($7.3/t) over the day, reaching RMB 3,900/t (around $566/t) EXW. Rebar futures on the Dalian

Commodity Exchange went up by RMB 13/t ($1.9/t).

In the first half of 2018, Hebei produced 109.7 million t of crude steel, 99.4 million t of pig iron, 125.2 million of finished

products, which is 5%, 11% and 1.7% down year-on-year, respectively, Metal Expert learnt.

Iron ore at 5-month high as steel supply worries increase

China / Iron Ore

Iron ore spiked again on expected continuation of steel supply reduction due to electricity cuts announced in Hebei

province.

Australian iron ore fines 62% Fe added $0.5/t, hitting $70/t CFR for the first time since March 15, according to Metal

Expert data. The uptrend extension both in the raw material and steel markets was supported by excitement for steel

supply shortage in China, as Hebei province – the country’s steelmaking hub – will face further production limitations.

“Some mills in the region will have to cut electricity consumption, so steel output will keep dropping, while the inventories

are rather low,” a market source told Metal Expert.

Aggravating worries regarding supply, coupled with speculations, caused a RMB 50/t ($7.3/t) daily hike in Tangshan

billet price. October rebar on the Shanghai Futures Exchange gained RMB 13/t ($1.9/t), and iron ore futures followed,

rising by RMB 8.5/t ($1.2/t) with most-traded contracts on the Dalian Commodity Exchange shifting from September

to January.

At the same time, trading activity weakened compared to the previous day. “Steelmakers are very cautious, some of

them think prices may correct downwards after such a sharp increase,” another source said adding that low demand

for the raw material may be another reason for the suppliers to revise prices in the near future. However, no significant

decline is expected as soon as steel market remains strong, insiders believe.

KNSS starts commercial production as scheduled

South East Asia / Flat Products

Krakatau Nippon Steel Sumikin (KNSS) is up to schedule with a start-up of commercial operations at its new flats mill.

With the mill, the company plans to increase Indonesia’s competitiveness in terms of auto steel production.

KNSS, which is a joint venture between Indonesia’s Krakatau Steel and Japan’s Nippon Steel & Sumitomo Metal,

inaugurated the steel mill capable of producing 480,000 tpy of flats, according to local media Birnis. In the first year,

KNSS plans to meet 30% of its maximum production capacity. “We hope within two years can be full capacity,” a mill

representative said. The producer declined to comment on the project details to Metal Expert by the publication deadline.

The company plans to become a leading automotive steel producer in Indonesia, Metal Expert learnt. In particular,

the product range of KNSS includes CRC and HDG for the automotive use. According to the official information, the

demand for galvanized steel reaches around 700,000‑800,000 tpy. With the production start-up at KNSS, imports of

galvanized steel will be reduced by 50%, Metal Expert learnt. In 2017, imports of GI decreased by 16% to 563,397 t

year-on-year, according to the customs statistics.

India worried about import growth from Japan, South Korea

India / Flat Products, Long products

India became a net importer at the beginning of this financial year (April 2018 – March 2019) due to a significant increase

of steel shipments from foreign suppliers, particularly from Japan and South Korea. Although import is supported by

strong demand in India, local producers are worried about this growth.

Steel imports from Japan to India increased by 47% to 374,000 t quarter-on-quarter in Q1 of FY 2019 (April-June).

Besides, supplies from South Korea reached 746,000 t, up by 35% q-o-q. Both Japan and South Korea have free trade

agreement with India and can benefit from selling to the market where there is high demand. At the beginning of June,

domestic prices for India-manufactured HRC surged to INR 46,000/t ($685/t) owing to a rapid growth of consumption,

while imported high quality material from Japan was by $35‑45/t cheaper on average, according to Metal Expert data.

Although imported steel just covered growing needs of Indian customers in April-June, market participants are concerned

about consequences of such a rapid growth of foreign supplies. Considering trade restrictions in the global

steel market, exporters may strengthen their positions in the Indian market, affecting local manufacturers. “Diversion

might take place to India for those products earlier meant for the European Union. We have to act expeditiously to

protect our domestic market,” JSW Steel joint managing director Seshagiri Rao said.

JSW Steel posts 8% growth of steel production in July

India / Flat Products, Long products

JSW Steel raised steel production volume in July and may keep increasing the number owing to expectations of strong

demand in the local market in October-December.

India’s major steel producer JSW Steel increased crude steel production by 8% to 1.4 million t year-on-year. In particular,

longs steel segment showed a significant growth of 41% to 306,000 t while flats steel output reached 986,000 t during

the period under review, up by 1% y-o-y, Metal Expert learnt from the company report.

JSW Steel continues to increase production thanks to higher utilization rates. An average utilization rate reached

93.3%, up from about 91% last financial year, Metal Expert learnt. Most market participants expect that major steel

producers will try to keep production of flats products or only slightly increase it in the coming months as demand in

the domestic market will show strong growth only from the end of September, while now consumption is somewhat

reduced due to the seasonal factor.

In the longer term, JSW Steel plans to boost production at a faster rate. The producer is going to add 1 million tpy of

crude steel at its plant Vijayanagar Works by March 2020 and double the capacity of Dolvi Works (to 10 million tpy),

as Metal Expert reported earlier.

Toyota to expand cars production in Vietnam

South East Asia / Flat Products

Toyota Vietnam is intending to expand its capacity and increase cars output in Vietnam in the medium term. The auto

sector development will support flats steel consumption in the country.

Toyota Vietnam announced its plans to invest about $40 million in production capacity expansion from 50,000 to

90,000 units by 2023, according to local media Vietnam News. The automaker announced in February it was stopping

production in the country and switching on the car import from its plants in other countries in Southeast Asia amid

import tax abolishment within the ASEAN. Nevertheless, high standards for imported cars led to higher interest of both

local and foreign auto manufacturers in producing vehicles in Vietnam.

Foreign carmakers are showing interest in automotive production development in Vietnam this year. In particular, Mitsubishi

Motors plans to build new car plant with estimated production capacity of 30,000‑50,000 units worth $250 million.

Besides, another carmaker Hyundai announced to build a second plant in the northern province of Ninh Binh. Thus,

the development of auto sector may support local steel demand, particularly, on flats products.

In January-July, 2018, the production of cars reached around 140,800 units, up by 10% year-on-year, as Metal Expert

reported earlier.

Uptrend in Australian coking coal market continues

Australia / Coal

Sentiment in the Australian coking coal market improved further early this week as mills in China were still interested

in purchases. Continued steel output restrictions in China’s Hebei province made customers believe that the steel

prices will be strong in the near future, so they are buying raw material at higher prices.

Australian premium hard coking coal tags added $2/t since Friday, reaching $178/t FOB. A contract for 75,000 t of

hard coking coal was traded on Monday on GlobalCoal at $177.5/t FOB for September delivery. Although overall raw

material consumption in China was reduced due to numerous production restrictions in Hebei aimed to lower emissions

at mills and cut power usage due to shortage, coking coal price received support from higher coke and steel prices.

“Coal fell enough and now end-users need to restock,” a Chinese-based trader said. Coke quotes in some cities of

the Shaanxi province (the main coal hub in China) increased by additional RMB 50/t ($7/t) this week. Moreover, new

steel capacity cut plan in Shandong province made some coke suppliers in this area increase coke prices as well.

Australian suppliers are almost not affected from lower consumption in China. Australian Gladstone port, which ships

mostly coking coal, showed a 4% y-o-y decline in shipments in July, coming to 5.8 million t. Volumes to India were on

the rise, while shipments to China lost 54% y-o-y.

HRC requirement to further increase in Turkey to benefit of local and Russian mills

Being the second largest flats market after the EU in the region, Turkey has significantly expanded cooperation with

foreign HRC suppliers as increased re-rolling capacity requires more feedstock. Domestic producers benefitted the

most, but Russia also managed to get its piece of the pie. Moreover, the trend is expected to continue as more projects

are on the way.

A number projects for coated steel production, which involve cold-rolling lines installation as well, have been underway

in Turkey since 2016. As a result, the nominal CRC capacity has added at least 2.3 million t over the period through

brand new investments and some expansions of the existing companies. It is worth mentioning that GI production

potential in Turkey increased by at least 1.65 million t from the end of 2016 to the middle of the current year, Metal

Expert estimates.

A substantial part of the additional HRC feedstock demand is covered domestically, but imports as well indicated a

considerable upturn: Turkey increased its hot-rolled steel purchases by 566,020 t or almost 14% to 4.67 million t in

2017, according to SteelData. Among foreign suppliers Russia was the one who benefitted the most: sales to Turkey

surged by 32.94% to 2.07 million t in 2017, making 44.3% of the country’s total HRC imports, Metal Expert estimates.

“Re-rollers either buy Russian HRC or force pipe mills to buy more from CIS because they booked from Colakoglu or

Habas ahead,” a major trader explained.

Moreover, Turkey’s feedstock requirement is expected to rise further. In particular, Yildiz Demir Celik is performing trials

at its 1.5 million t CR line and is expected to start commercial production in September 2018. In addition, Tat Metal is

targeting to install a 1.2 million tpy re-rolling facility by Q4 2019. Gazi Metal initially planned to reach 1.5 million tpy of

CRC (versus current 750,000 tpy) in the third phase of the investment, but no information on the current status of the

project is available. Coated steel capacity will add another 750,000 t until 2020 with Erdemir and Yildiz projects. The

latter is mulling the installation of the galvalume line, sources say.

Domestic HRC producers will surely benefit from the positive trend, which will also support their positions amid global

protectionism and export challenges. However, the volume of re-rolling grade of HRC cannot be easily increased

within the current capacities due to the technical efficiency issues. There are some plans in Turkey for additional HRC

production considered by a couple of mills, but those could be realized only in two or three years. “Isdemir will increase

by 1‑2 million t, but in about two years. Habas is planning something too but details are unknown. A new project of

Tosyali is expected to have it all – from crude steel to premium coated,” the source said. Taking into account that local

HRC capacity will take a while to increase, foreign suppliers will enjoy better demand in Turkey in the medium term,

Metal Expert understands.

CIS, Russia especially, will be the key import source for the re-rolling grades of HRC for Turkey, with their main advantages

being short lead time and established trade relations. However, some other suppliers may interfere. In particular,

Brazil is capable of supplying the needed grades and combining the cargo with slabs for better freight rates.

Some volumes were coming from China in the past, the EU is also a possible and a duty-free source. Interestingly,

some new suppliers can enter the market of Turkey in the short run: traders are studying the opportunities to deal with

Algeria, Morocco for Turkey. “Their quality might be a bit lower than the CIS one but the price is way better and they

do negotiate,” a trader told Metal Expert. Notably, with North Africa entering the market, the freight advantage of the

CIS will somewhat fade.

It is also worth mentioning, that the re-rollers might from time to time chose to cover a part of their requirement for HDG

production by cold-rolled full hard (CRFH) rather than the HRC as they are already doing. In particular, it is expected

that Erdemir will probably have to source CRFH as their new 350,000 tpy HDG line to be launched by the end of this

year, and will be capable of producing over 2 m width coils, while company’s pickling line is able to process narrower

materials, sources report. “Normally mills prefer not to sell CRFH as eventually it is killing the efficiency: less processed

[material] and cheaper price. It eats part of CRC allocation so eventually it is the matter of how the market is going,” a

source said. Turkey has been rather active in buying CRFH from China since autumn 2017, with over 150,000 t being

booked up till July, a seller mentioned.

US renews sanctions against Iran, puts steel industry under pressure

Middle East / Steel Semis

US sanctions against Iran have come into force as a result of Trump’s decision to withdraw from the nuclear deal announced

in May. Numerous limitations put pressure on Iran’s economy, including the steel industry. At the same time,

most market players are evaluating their positions now and hope to find the ways to stay in the international business.

Sanctions against Iran have been officially set on August 7. “These are the most biting sanctions ever imposed, and in

November they ratchet up to yet another level. Anyone doing business with Iran will not be doing business with the United

States,” the president tweeted. Restrictions not only prohibit the purchase of the U.S. bank notes or precious metals

but also concern energy, shipping, port operations, automotive sector and petrochemical industry, Metal Expert learnt.

At the same time, the influence on the third countries is yet to be clarified. “Now importing countries from Iran are

under political pressure to curb the imports from Iran,” a market source mentioned. Most traders and steel producers

are estimating the market perspectives. “We have to check this issue with our people on different destinations,” a steel

trader told Metal Expert. Most sources admit there is still uncertainty in the market. “It may be early now to be sure

about the outcomes, it [developments on export] would be clear during next weeks or month,” a source told Metal

Expert. “We start to see from today,” a billet exporter added.

Moreover, the difficult financial situation inside the Islamic Republic also impacted the local and export market negatively.

“New rules and regulations which are issued by the government play a key role now for us,” another steel producer said.

Nevertheless, Iranian steel mills aim to continue their export operations relying on the previous experience. “The

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