ASIA STEEL OUTLOOK: Lunar New Year could damp sentiment, spot prices

The upcoming Lunar New Year period is expected to dampen demand for steel in Asia, although the extent to which it does so continues to depend on the ongoing winter production cuts in China that are scheduled to last until mid-March this year.

The Lunar New Year festival is celebrated in many Asian countries including South Korea, Singapore, Malaysia, Taiwan and Vietnam, which typically declare short holidays during the period.

However, nowhere else is it celebrated as much as in China, which starts its major Golden Week holiday on February 15. Workers are expected to begin leaving for their hometowns all across China from as early as February 12. The official holiday ends on February 21, although it will take a few more days for the festivities to subside and for workers to return to their work stations.

Downstream mills are expected to lower their operating rates during this period.

Long Steel Outlook
Work at most construction sites in China will halt a week ahead of the Golden Week holidays and will resume only one week after the official end to the break, dampening demand for rebar for about three weeks, market sources said.

“End-users expect rebar lower prices [over the three-week period], so they are not anxious to build up inventories before the Lunar New Year break as they did in past years,” a trader in eastern China said.

As a result, market participants anticipate lower demand and weaker long steel prices to be seen in the coming few weeks.

Other sources outside China said they expected regional long steel prices to face some downward pressure in the weeks leading up to the Lunar New Year period.

“Long steel prices have eased after climbing rapidly in the second half of December. The Lunar New Year holidays could lead to weaker demand in the spot market coming soon and that may be exacerbated yet further if prices do come down in China,” a trader based in Southeast Asia said.

China’s rebar export prices have fallen by around 2% since the last week of December. The Metal Bulletin fob China Rebar Index was at $562.08 per tonne fob China on January 8, compared with $573.75 per tonne fob China on December 26.

In Singapore, high inventory levels and weak demand from downstream building and construction industries have deterred active buying from end-users and stockists.

Singapore import prices have been largely flat since mid-December due to thin spot activity, keeping stable at $560-575 per tonne cfr Singapore between December 18 and January 2 before edging up to $570-580 per tonne cfr Singapore on January 8.

Flat Steel Outlook
Falling flats prices in China have domestic traders waiting on the sidelines.

“Given the recent downward price correction in the domestic markets, traders are likely to remain in wait-and-see mode in the short term,” a Shanghai-based trader said.

The willingness to build up inventories for the winter season is also weaker this year due to the current high prices, a Tianjin-based trader said.

“Those who built up flat steel inventories for winter storage last year lost money as hot-rolled coil prices fell sharply immediately after the Lunar New Year period. Buyers are more cautious this year, especially the big trading firms,” he added.

HRC prices in key market China continued on a downward trend since the last week of 2017 due to a lack of demand. The Metal Bulletin fob China HRC Index was at $566.33 per tonne fob China on January 8, compared with $574.69 per tonne fob China on December 25.

Flat steel prices outside China have stabilized in recent weeks but could see some changes closer to the Lunar New Year period.

Sources in Vietnam think that flat prices could trend upwards in the next two weeks before dropping again closer to the Lunar New Year period.

“Buyers are on the lookout for March shipment cargoes. Hence, demand could see a slight uptick in the next two weeks as end-users are looking to secure more cargoes to replenish their inventories for after the Tet holiday period,” a Vietnamese trader said.

Market sources said end-users were aware that their current bids are not able to secure cargoes and may be willing to increase their bids in the near-term in order to secure sufficient volumes.

Sellers said the availability of some flat products remained an issue.

“There are lower volumes of flat steel coming out of India, Japan and South Korea due to production issues at some mills in those regions,” a trader based in Singapore said.

Offers for India, Japan and South Korea-origin HRC are expected to remain lofty in the near term as sellers make use of this opportunity to try and hike their prices further.

China vows to maintain lower steel production rates
China remains the key to market fundamentals after the Chinese New Year, industry sources said.

The Ministry of Industry and Information Technology has vowed to clamp down on new steel capacity in 2018 and to continue eliminating old steel capacity.

Key steelmaking province Hebei will attempt to cut 6-8 million tpy of iron and steel capacity in 2018, an official at the provincial environmental protection bureau said in a press conference on January 5. The province has cut crude steel capacity by 27.54 million tpy and hot metal capacity by 21.32 million tpy in 2017.

By the end of August 2017, the country had already met its target of eliminating 50 million tonnes per year (tpy) of crude steel capacity, according to a government media briefing released mid December. This follows a capacity reduction of 65 million tpy in 2016, meaning that the country has eliminated 76.7% of its targeted 150 million tpy of capacity cuts for the 2016-2020 period.

Moreover, China is now in the midst of winter production shutdowns that began in mid-October, and various steelmaking provinces have ordered cuts in operating rates at steel mills and threatened to impose fines on errant mills that have not met stipulated cuts in production rates.

The global steel market will be keenly eyeing the country’s production rates once official restrictions on output are lifted in mid-March.

“A real weakness in steel prices may come from April onwards if Chinese steel mills are allowed to increase production after mid-March,” a second trader based in Singapore said.

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