ANALYSIS: Where are Asia's slab import prices heading?

Recent tightness in the supply-demand balance for slabs has driven up import prices in South-East and East Asia, but market participants now generally expect a downward trend, Steel First has heard.

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This will come on lower prices for raw materials and flat steel products.

Import prices for the semi-finished product have reached levels between $520 and $555 per tonne cfr in the past three weeks, on lower availability in the CIS countries and higher demand from Indonesia.

This is up from the low range of $490-500 per tonne cfr seen between November last year and the beginning of January this year, according to Steel First’s South-East Asian slab import price assessment.

At least two major producers in the CIS region have cut back on slab volumes for April and May export shipments, due to internal maintenance programmes, Steel First understands.

One mill was said to have increased its inter-holding supplies, reducing spot sales.

Krakatau Posco
In Indonesia, PT Krakatau Posco, the 3 million-tpy joint venture between South Korea’s Posco and Indonesia’s state-run Krakatau Steel, had to go out to the market for slab purchases following an accident at its blast furnace early in January.

“One of the key factors [behind the price rise for slab] was Krakatau Posco going to the market,” an Asian trading source said. “That’s why billet prices have been going down and slab prices up.”

A second experienced trading source based in Asia confirmed this view. “The furnace leak problem led to a spike in prices as people had to secure slab from elsewhere,” he said.

Krakatau Posco paid as much as $555 per tonne cfr for slab in a recent transaction, contributing to the price rise at the upper end of the range.

The company confirmed on Wednesday March 5 that there had been a leakage incident early in January at the Krakatau Posco blast furnace facility. However, the company said that no slab was purchased during January, and the facility has now been repaired.

Peak reached?
High prices of about $550 per tonne cfr have been heard in other countries, too, such as South Korea and Thailand.

“Slab prices have probably reached their peak, at levels that are unsustainable,” a well-placed source in South Korea said.

The price rises were mainly for material to be shipped between the end of March and the beginning of May, he noted.

“Flat steel prices are facing downward pressure in general, and iron ore and coking coal prices are going down as well,” the source pointed out. “So you’ll probably see declining slab prices soon.”

One source in Taiwan concurred. “Indonesia is a protected market and they [Krakatau Posco] needed slab,” he said.

But as prices for finished steel products are dropping, slab buyers will hold firm at lower bid levels, the source noted.

Some major slab buyers in Asia are also considering cuts in their utilisation rates because of the depressed market conditions, Steel First understands.

Falling HRC prices
This week, hot rolled coil (HRC) prices in South-East Asia moved down to levels even lower than the upper-range slab prices.

Deals in Vietnam were closed below $555 per tonne cfr for Chinese SAE 1006 grade HRC, in some cases.

Base-grade HRC has already been sold as low as $535 per tonne cfr.

Steel First has also heard about a deal closed in South Korea on March 5 at $540 per tonne cfr for Chinese SS400 HRC.

Supply-demand
The downward trend in the finished flat steel market will certainly add pressure to slab sellers looking to stick to high offer prices.

In the end, however, this will probably be counterbalanced by supply-demand issues in the slab market, sources contacted by Steel First said.

News that India’s Essar might need to buy as much as 1 million tonnes of slab this year, for example, could be a factor in favour of sellers.

“The global slab market is a small one, totalling only 20 million tpy, so 1 million tonnes would be 5% of the market,” the South Korean source said. “This would have some impact.”

Meanwhile, SSI UK told Steel First this week that it planned to increase its slab sales by 15% this year.

The company had been focusing on sales to Europe and North America, but is now targeting buyers as far away as Australia.

Steel First has heard that UK-manufactured slabs could even reach South Korea.

‘Crazy market’
Whether slab prices will go down has yet to be seen, and will largely depend on the outcome of continuing quarterly negotiations between major sellers and buyers.

As a source in one major company said to Steel First, this is “kind of a crazy market”.

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