ASIA STEEL OUTLOOK: China's HRC exports to Vietnam likely to fall once Formosa fires up new furnace

China could be badly affected by a shrinking import market for hot-rolled coil in Vietnam once Formosa Ha Tinh Steel fires up its new blast furnace this month, market sources told Metal Bulletin this week.

Formosa Ha Tinh plans to increase its mill operating rates to “high” levels once its fires up its new 4,300 cubic meter No2 blast furnace in mid-May, a source told Metal Bulletin this week.

“Operating rates will increase gradually, but there is no confirmed timeline as to when the BF and downstream production units will achieve 100% run rates,” he said.

Running the second blast furnace will give Vietnam's major domestic integrated producer an additional 3.5 million tpy of carbon steel production capacity, on top of the current 3.5 million tpy capacity, in the second half of this year. The mill will then have a total capacity of 7 million tpy, including 5.2 million tpy of flat steel - primarily HRC and hot-rolled band - as well as 478,000 tpy of billet, 600,000 tpy of wire rod and 600,000 tpy of bars in coil.

Impact on imports
The firing up of the blast furnace and the sharp increase in domestic steel production capacity is expected to reduce Vietnam’s steel import volumes and increase spot market supplies of HRC.

In 2017, Chinese HRC export volumes to Vietnam fell to 4.64 million tonnes, down from 5.36 million tonnes in 2016, according to data from Metal Bulletin Research, while China's second-largest flat steel export market, South Korea, imported 3.8 million tonnes of China-origin HRC in 2017, up from 3.54 million tonnes in 2016.

Formosa Ha Tinh is presently selling slightly more than 200,000 tonnes per month of HRC in the domestic Vietnamese market, and exporting less than 50,000 tonnes on a monthly basis to neighboring countries.

According to Vietnamese traders, the company supplied a total of about 1 million tonnes of HRC to the domestic market in 2017 after starting up its first blast furnace at the end of May.

Domestic re-rollers and Asian flat steel market participants regularly look to Formosa Ha Tinh's monthly offer as a kind of benchmark, with traders attempting to offload position cargoes at slightly lower prices and Chinese mills typically offering re-rolling grade HRC at up to $15 per tonne above that level.

Formosa Ha Tinh was offering HRC to the domestic market at about $600 per tonne cfr Vietnam in mid-April this year, while China-origin back-to-back cargoes were offered at $600-615 per tonne cfr Vietnam. Position cargoes were offered at $595-600 per tonne cfr Vietnam.

Metal Bulletin price assessment for HRC was $590-605 per tonne cfr Southeast Asia on April 30, unchanged from the previous week due to limited spot trading and weak demand.

Downstreamupside for imports
However, this does not mean that Vietnam will be weaned off imported HRC completely, given the sizeable and growing appetite from downstream re-rollers.

“Vietnamese re-rollers have a sizeable appetite and will continue to import HRC - its just that the volumes could be smaller and the market more competitive for traders,” a re-roller said.

According to statistics from the South East Asia Iron and Steel Institute, Vietnam’s HRC import volumes virtually doubled between 2012 and 2016 - from 4.85 million tonnes in 2012 to 9.39 million tonnes in 2016 - on the back of booming demand for downstream construction materials such as cold-rolled coil, hot-dipped galvanized coil and steel pipes.

The majority of the HRC imported was from key supplier China, where major steel mills such as Baosteel, Benxi Iron & Steel, Wuhan Iron & Steel and Maanshan Iron & Steel regularly sell spot cargoes to Vietnam. Other regular suppliers include Japan’s Nippon Steel & Sumitomo Metal Corp and JFE Steel, along with South Korea’s Hyundai Steel and Posco.

India, CIS and Brazil-origin materials have also been sent to Vietnam, especially when China-origin cargoes are priced less competitively due to favorable
domestic prices. And this was especially so in the October 2017 to March 2018 period, when winter production cuts and seasonal demand caused the Metal Bulletin fob China index to reach $620.81 per tonne on March 6, climbing steadily from 539.38 per tonne on October 30, 2017.

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