FOCUS: Global slab shortage sheds light on rocketing flat steel prices [UPDATE]

A global shortage of steel slab is a key factor in rocketing flat steel prices, market sources told Fastmarkets this week.

Reduced CIS supplies
Customers from Italy and Turkey have noticed a reduction in the availability of steel slab originating in the Commonwealth of Independent States (CIS) region in the second half of March.

“Some Italian re-rollers cannot produce much coil and plate due to missing slab volumes. Russian suppliers [of slab] are selling free volumes to China and the US, but not to Europe,” a Northern European distributor said.

“[Mills in] Asia and Brazil have been booking CIS slab, so availability is limited now,” a Turkish source told Fastmarkets.

At least two large slab cargoes originating from the CIS were heard booked by Brazilian customers at $780-785 per tonne cfr in the second half of March.

“There is definitely more demand from Latin American customers now,” a spokesperson from Russia’s Novolipetsk Steel (NLMK) told Fastmarkets.

“Right now there is a big demand for everything in Brazil,” one trader said.

“Also, they [Brazilian mills] are selling their slab to the United States under quota, without Section 232 [tariffs]. So they import from third countries to make up the balance. They sell expensively to US and Canada and then buy relatively cheaply from Ukraine, Russia and Asian producers,” he added.

Fastmarkets’ weekly price assessment for steel slab, export, fob main port Brazil, was $780-810 per tonne fob on Friday March 26, unchanged from the previous week.

Recent deals for Brazilian slab were reported at $800-810 per tonne fob to clients in the US, with some offers reported as high as $820 per tonne fob.

Ukraine-based producer Metinvest said the company had not reduced the allocation of slab to its traditional markets.

“Long-term contracts with our key clients in Europe and Turkey are our main priority. We consider opportunistic sales to Latin America if we have some volumes available,” Metinvest told Fastmarkets.

A source in Latin America suggested that reduced availability of slab from the CIS to Turkey and Italy could also be because NLMK USA is currently buying more slab from its parent company in Russia than last year – ever since reaching a settlement with the US government about Section 232 tariffs last year.

“The agreement will only compensate expenditure on past shipments and it doesn’t change any rules for this year, but NLMK USA is apparently buying more volumes from Russia this year, [and will be] expecting to get a similar deal later,” a source told Fastmarkets.

“In December 2020, NLMK Group restarted shipments of slab from Lipetsk in Russia to its US assets which were stopped in 2019. We need these slabs to meet the needs of our clients. If market sentiment changes and shipments of our own semis to the US assets will stop being profitable, we may redirect these volumes to the other markets,” the company spokesperson told Fastmarkets.

According to the statistics from the International Trade Administration, Russia increased its slab shipments to the US by 65.5% year on year in the first three months of 2021 to 162,265 tonnes, compared with 98,064 tonnes shipped over the same period in 2020.

Higher shipments of CIS slab might also be seen to Mexico later this year with one of the two major flat-steel rolling projects coming on stream.

ArcelorMittal Mexico will start a 2.5 million-tpy hot strip mill at its Lazaro Cardenas asset, which currently produces only merchant slab and long steel. This was expected to come on stream in mid-2020, but commissioning was delayed until the end of 2021 because of the Covid-19 pandemic.

Currently, the company has capacity to produce 4 million tpy of slab. The commissioning of the hot-strip mill means the availability of slab for third parties will be significantly reduced – to about 1.5 million tpy, Fastmarkets understands.

Ternium, which is the major importer of slab in Mexico, has the capacity to produce more than 6.4 million tpy of finished flat steel products and just 2.3 million tpy of slab at the moment. And it is to start up a new 4.1 million-tpy hot-rolling mill in Pesqueria in June, with slab supplies expected to come from Ternium’s former CSA facility in Brazil’s Rio de Janeiro state.

Mid-term outlook positive
CIS-origin slab prices have reached a 10-year high at the end of March, supported by the uptrend in finished flat steel prices both domestically and in the customer markets overseas.

Fastmarkets’ weekly price assessment for steel hot-rolled coil (HRC), export, fob Black Sea, CIS was $830-855 per tonne on Monday, up from $815-830 per tonne a week earlier.

Turkish HRC sellers also achieved higher sales prices in export outlets, with about 10,000 tonnes booked to the US at $940-950 per tonne fob, sources said.

Fastmarkets’ weekly price assessment for steel HRC, export, fob main port Turkey was $890-950 per tonne on Friday, up by $10-50 from $880-900 per tonne on a week earlier.

And Fastmarkets’ weekly price assessment for steel slab, export, fob Black Sea, CIS was $720-750 per tonne fob Black Sea on March 29. Last time the market reached that price of $720 per tonne fob was in February 2011.

Sources on the seller side expect the uptrend in slab prices to continue in the in the near and mid term amid “the support coming from growing finished steel products prices, the stable raw materials basket [and the] deficit of final [HRC, CRC and HDG] products in the European market.

“Local flat steel consumers [in Europe] have order-books filled until the end of 2021, which is supporting the [slab] market,” Metinvest said.

Fastmarkets calculated its daily steel hot-rolled coil (HRC) index, domestic, exw Northern Europe, at €836.00 ($981.27) per tonne on Wednesday March 31, up by €16.00 per tonne week on week and by €98.00 per tonne month on month.

And flat steel prices are expected to rise further, reaching €900 per tonne ex-works – the price targeted by ArcelorMittal – in April. The upwards trend in the EU coil market was driven by material shortages, good demand and lack of overseas alternatives.

The main slab consumers buying the semi-finished product in the spot market, however, are located in Italy and produce heavy plate. And market participants said that recovery of coil prices in Europe had been much faster than for plate, mainly due to better demand.

“Plate prices have been lagging behind the coil products. It has been the worst market in the flat steel segment, but now it seems that prices have finally started to recover due to rising slab costs and [an increase in] restocking,” a Northern European source said.

“Demand is cautiously better but definitely still not brilliant,” an Italian re-roller source said. “With respect to other flat steel products, plate remains the only one struggling with a price increase. The forecasts are pretty good, but so far the reality has been that the market keeps suffering in terms of real volumes traded.”

Sources also said that the shortage of HRC was supporting the slight recovery in demand for plate, with some buyers looking for thinner plate to replace missing volumes of coil, according to two market sources.

The rise in slab costs has also contributed to the increase in plate prices.

Fastmarkets’ weekly price assessment for steel domestic plate, 8-40mm, exw Southern Europe, was €720-730 per tonne on March 31, up by €10-20 per tonne week on week and up by €90 per tonne month on month.

The assessment was based on deals, while official offers have been heard at €750 per tonne ex-works.

“Plate prices need to reach €800 per tonne ex-works as soon as possible due to rising production costs,” a production source said.

Flat steel uptrend in Asia, export rebate doubts limit slab offers
Climbing flat steel prices in Asia have also bolstered the confidence of slab sellers, who have refrained from selling slab on because of better downstream hot-rolled coil prices, or because they anticipate being able to sell the slab at higher prices in the coming months.

The climbing prices are largely due to the uncertainty over whether China will reduce or remove export rebates for flat steel products such as HRC, cold-rolled coil and hot-dipped galvanized coils.

“The HRC market is largely expected to see significant price increases in the near term, especially if China announces rebate cuts and Chinese suppliers withdraw from the spot market and cause a shortage of HRC,” a seller source in China told Fastmarkets.

A major South Korean blast furnace-based steel mill has abstained from offering slab, preferring instead to concentrate on offering HRC cargoes, thereby  contributing to the reduction in slab supplies.

A major Vietnamese blast furnace steel mill have also rejected bids for steel slab recently, hoping for more price increases in the downstream HRC markets.

Slab buyers have not been getting offers of slab from the CIS in recent weeks, however, and have had to purchase slab from Iran instead, sources said.

Felipe Peroni in Sao Paulo and Serife Durmus in Bursa contributed to this report.

[Editor’s note: This article was updated on April 1 to provide Ternium’s latest projection for the start-up of its hot-strip mill in Pesquería. Ternium now expects the mill to start up in June of this year instead of this month.]

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