2017 REVIEW: Diverging fundamentals erode CIS export slab premium to billet

The Commonwealth of Independent States (CIS) region’s export slab price lost its premium to corresponding billet in 2017, driven by a combination of an easing international slab market and a tightening billet market.

In the first half of 2017 CIS export slab price was at least $20 per tonne higher than billet. But by late May, the margin had thinned to $10 per tonne; and by mid-June, slab had shifted to a $10 discount to billet.

Slab under pressure

In May, the global slab market came under pressure from a downward trend in coking coal and iron ore prices, as well as weakening fundamentals in the flat steel market stemming from low hot-rolled coil (HRC) prices in China.

In addition, competition in the international slab market increased as Iran massively raised its presence. In the first seven months of the current Iranian year - from March 21 to October 22, 2017 - slab export volumes from the country more than tripled year on year to 1.72 million tonnes, according to the Iranian Steel Producer’s Association.

Consequently, CIS export slab prices began a downward trend in the second quarter of 2017.

Favorable conditions for billet price growth
At the same time, the conditions in the billet market were favorable for price growth.

The recovery of global scrap prices in the second half of 2017 has been a key factor, with Metal Bulletin’s US-origin HMS 1&2 (80:20) scrap index averaging $325.87 per tonne cfr Turkey in July-December 2017, compared with $276.98 per tonne cfr in the previous six months.

Besides that global billet supplies fell while demand was on the rise, with Chinese steel output cuts, implemented to comply with tougher environmental rules, were the major reason for the reduction.

China had reduced crude steel production capacity by more than 58 million tonnes by the end of June, surpassing the full-year goal of 50 million tonnes, resulting in lower steel production and exports from the country.

Further, Chinese domestic demand for semi-finished product was high, spurred by the revival of construction activity, which further restricted available export volumes.

Meanwhile, Egyptian customers’ interest in billet soared after the country imposed anti-dumping duties of 10-27%on import rebar from China, Turkey and Ukraine in June.

Ukraine crisis
Availability of billet in the CIS export market was also cut from the end of February after several steel mills in Ukraine stopped operations due to problems with raw materials supply following the blockade of a railroad in the east of the country.

Among them were Dneprovskiy Dzerzhinsky Metallurgical Plant (DMKD), located in Kamyanske in Central Ukraine, as well as Yenakiieve Iron & Steel Works (Yenakiieve Steel) and Alchevsk Metallurgical Plant (AMK) located in the rebel-held Donetsk and Luhansk regions.

DMKD, a billet and long steel rolling unit of Industrial Union of Donbass (ISD), restarted operations in late July, sourcing raw materials from Metinvest’s assets in Central Ukraine. The mill returned to the export market in September.

Meanwhile, Yenakiieve Steel, along with other Donetsk-based Metinvest’s assets, in mid-March were seized by the rebels who restarted steelmaking and rolling activity at the mill in May.

Long products were first supplied locally for the needs of the rebel-held territories. But by October, market participants reported small volumes of Yenakiieve billet being offered for export from Russian ports at a prices lower than other mills.

Some sources also noted Yenakiieve billet and long steel products being supplied to Russia.

And the Alchevsk Metallurgical Plant, which traditionally supplied slabs and plate, is about to restart production under the same rebel administration as Metinvest’s Donetsk-based assets, according to the market sources.

The facility is expected to focus on billet production as it has a blooming mill. The produce will be sold to Russian re-rollers, the sources said.

Prices to level-off in the near-term
The reversed trend in CIS export slab and billet prices reached its height in the second half of August when the billet price was more than $50 per tonne higher than slab.

But with Chinese export HRC prices peaking in September, interest in slab imports recovered in the global market.

Metal Bulletin’s weekly assessment for Chinese export HRC averaged $578.13 per tonne fob in September 2017, the highest since February 2013, pushing CIS export slab prices up to parity with billet.

Metal Bulletin’s CIS Billet Index soared to $514 per tonne fob Black Sea on Monday December 18, while the weekly price assessment for CIS export slab was $505-510 per tonne fob, up from $475-485 per tonne fob Black Sea.

Market participants believe that, in the near term, prices will level off again. And they expect slab prices to gain some value on the tight availability of January-produced slab volumes from the CIS.

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