2017 REVIEW: Global steelmakers rush to fill China’s absence from export market

Steel suppliers from around the world rushed to fill up the gaping hole left behind by China’s withdrawal from the export market in 2017, with domestic production cuts in key Chinese steel-producing regions cutting supply and driving up domestic prices.

Steel from the CIS region, South Asia and the Middle East found larger shares in the Asian market. Longs, flats and semi-finished products from Russia, Ukraine and India were especially prevalent.

Flat steel products from Magnitogorsk Iron & Steel Works (MMK) were among the most competitively priced cargoes in the Vietnamese import market for SAE1006 hot-rolled coil with the Russian producer seeking out sales outlets in Asia following the European Union’s imposition of duties amounting to €96.50 ($114) per tonne on its products.

So competitive were MMK’s HRC offers that they resulted in Vietnamese buyers submitting bids at levels close to them, especially toward the last quarter of the year. The offers, which were able to regularly undercut cargoes from India, China, Japan and South Korea by about $10-20 per tonne, tempered the price increases in Vietnam’s HRC import markets.

Buyers in Vietnam also had the option of domestic supply from Formosa Ha Tinh, which market sources said was producing HRC of quality that was good enough for end-users.

Indian share

Among the biggest gainers of lower Chinese steel exports was India, which increased its share of Southeast Asia’s HRC, billet and rebar markets. Products from JSW Steel, Steel Authority of India Limited (Sail) and Bhushan Steel made regular appearances in various major import markets.

India’s steel exports to member countries of the Association of Southeast Asian Nations (Asean) increased their share of the market to 5% in the first six months of 2017, compared with just 1% in the same period of last year, according to statistics from the South East Asia Iron & Steel Institute (Seaisi).

This share is expected to remain high in the second half of 2017 and into 2018.

In contrast, Chinese steel exports to the Asean region dropped 42% to 16.35 million tonnes in the first nine months of 2017 compared with the same period of last year, according to Seaisi figures. Its steel exports to the rest of the world dropped 30% year on year to 59.61 million tonnes in the same period, the association’s statistics show.

The biggest drop in Chinese steel exports to Asean was in the rebar segment, in which shipments fell 79% to 2.53 million tonnes. This was followed by sections, which fell 46% to 703,931 tonnes. The next biggest drop was in the wire rod segment, in which Chinese exports retreated 41% to 2.26 million tonnes.

Production margins
The main reason for China’s absence from the export market was the fact that margins were better in its domestic steel market, with price spreads between raw materials and steel products widening considerably in the second half of the year. This absence had led to non-Chinese steelmakers rushing in to fill the gap in markets typically dominated by Chinese steel.

Chinese rebar producers saw their profit margins widen especially during the August-September and November-December periods, when the price spread between heavy melting scrap and rebar reached 2,125-2,620 yuan ($321-396) per tonne amid good demand for and limited supply of the long product as a result of production cuts. These were supported by a Chinese government crackdown in the first half on steel mills using induction furnaces that were said to have produced substandard steel.

Export prices for Chinese rebar tracked domestic price movements, with the Metal Bulletin fob China Rebar Index reaching $559.50 per tonne fob China on December 14, compared with $533.13 per tonne fob China on Thursday November 16 when production cuts for the winter heating season in north China officially started.

Sources said demand from the building and construction industries in China had not subsided as much as they had expected during the winter season, which resulted in the sustained appetite for rebar.

Flats steel producers in China also saw their margins widen during certain periods of 2017, though theirs lagged behind those of long steel producers. Margins for flat steel products rose above $300 per tonne in August and have remained there since then.

Hot-rolled coil export prices similar tracked the strength in the domestic market. Metal Bulletin’s fob China HRC Index was at $579.30 per tonne on December 14, compared with $551 per tonne on November 16.

China raises imports
China increased its steel imports toward the end of 2017, to the surprise of traders and producers everywhere. Steel traders in Asia attempted to work out an arbitrage for billet and slab to China amid keen spot demand.

It was described as a highly unusual move, with industry sources saying it was “rare” to see China looking for imports as it had typically been a net exporter of steel products.

There were also inquiries to allocate billet volumes from India, the Middle East and the CIS region to China, with traders working hard to find shipping space and lock in freight rates to move these cargoes.

Chinese traders said that Iran-origin billet had already been sold to buyers in China, although details such as the quantity and discharge laycan were not immediately available.

The bullish sentiment seen in the Asian steel market is expected to persist into early 2018, especially as China is expected to maintain production cuts in the northern region at least until mid-March, which would continue to provide support to prices.