GLOBAL STAINLESS OUTLOOK: Asian Q2 outlook bearish; Section 232 to support US prices

Stainless steel prices in Asia are likely to remain bearish on expectations of continued low demand in the second quarter of the year, while prices in North America are likely to be supported by the Section 232 import tariffs in the United States.

Asian outlook bearish
East Asian import prices for stainless steel are likely either to decline further or to hold relatively steady at low levels during the April-June quarter, amid continued softness in regional demand, market participants said.

Demand from overseas buyers is poor, partly because some of them expect prices to continue to fall and are holding back from making inquiries, a trader in eastern China said.

Interest was even weak for Chinese cargoes, which were already at the lowest prices among materials offered by East Asian suppliers, a consumer source said.

Buyers are also closely watching what Tsingshan Group’s new Indonesian mills are doing, to get a better sense of the market price direction, the east China-based trader said. “Importers feel that Tsingshan Indonesia is a game-changer for the Asian stainless steel market,” he added.

“The production cost in the Indonesian project is as much as 800 yuan [$127] per tonne lower than in the traditional production process [used by Chinese steel mills such as Taiyuan Stainless Steel],” Charlotte Lam, chairman of Tsingshan’s Indonesian project, said in June 2017.

Sluggish trading activity in March has led to uncertainty among some market participants about how stainless steel prices will move during this quarter.

“Mills are at a loss about how to sell cargoes because importers are in no mood to purchase,” a Taiwanese trader said.

One source from a large Chinese mill said that it was a challenging task to predict price directions for the next few weeks. “The market is rather quiet, and prices are very messy now,” he said.

Inventory and production levels among Chinese stainless steel sellers have also remained high, making it difficult for demand levels to catch up with supply, market sources said.

In response to the Section 232 tariffs imposed by the US, some mills might cut production or lower their offers while they attempt to move cargoes to alternative destinations now that the US market is effectively closed, export traders said.

That said, the US only purchases a small proportion of China-origin stainless steel, so market participants do not expect there to be any significant direct effect on Chinese stainless steel exports caused by the US import tariffs.

In the first two months of this year, China shipped 1,824 tonnes of stainless flat steel to the US. This was only about 0.3% of its total exports of 528,749 tonnes during the period.

Taiwan, on the other hand, accounted for 22% of China’s stainless flat steel exports in January-February this year.

Several industry sources have told Metal Bulletin that Taiwanese government officials have spoken to them about a potential ban on all China-origin steel imports in the near future, in the hope that the island territory can secure an exemption from the US tariffs.

Such a ban, if implemented, would probably shift trade flows for stainless steel, given that Taiwan is one of the largest importers of China-origin stainless material, market participants said.

“If Taiwan makes the decision to block imports, it will have a very negative influence on China’s stainless export market,” a trader in east China said.

Market participants were also concerned that other overseas consumers, especially those in Asia, would take similar action against Chinese material. Asian buyers accounted for 80% of China’s stainless flat steel exports during the first two months of 2018.

But an industry analyst in Shanghai pointed out that export volumes from China are small compared with the country’s total stainless steel production, meaning that export prices usually follow domestic price changes.

Weak demand and high production are expected to persist in China’s domestic stainless steel market in early April, so prices are likely to remain on a downward trend in the short term, market participants said.

Metal Bulletin’s assessment of prices for benchmark grade-304 stainless cold-rolled coil in the major market of Wuxi was 14,000-14,800 yuan ($2,220-2,347) per tonne including VAT for the week ended April 4. This was down by 200-300 yuan per tonne week-on-week.

Yet, with demand in the second quarter of the year typically better than in the first quarter, market participants expect prices to recover from the second half of April onward.

US prices up on Section 232 support
Stainless steel market participants in the US expect major mills’ April base price increases to be accepted by the market, with further increases likely in the next few months.

American Metal Market’s latest price assessment for grade-304 cold-rolled stainless sheet was $1.38 per lb on April 10, compared with $1.30 per lb on March 26.

Major stainless mills announced a round of price rises last month that took effect with shipments on April 1, marking the third round of rises so far this year.

Extended mill lead times and continuing strong demand for material will support the April price increase, market participants said.

“Based on the fact that mills have closed their order books through to June, they have the leverage they need to pass on price increases,” a US Midwestern distributor source said.

Overall demand “remains stable at a healthy level, which also bodes well for the price increases [being accepted],” a second US Midwestern distributor said.

The continuing uncertainty regarding the 25% tariff on steel imports imposed by the US last month, in response to the Section 232 investigation into steel imports, is another factor in the mills’ favor, according to a third Midwestern distributor.

Not only are various countries temporarily exempt from the tariff while they try to negotiate a permanent exemption, but US companies are also able to file product exceptions from the tariff.

“It really is tough to determine the effect of the [tariff] without understanding the status of all of the exception requests that were filed,” the second distributor said.

Market participants held differing views on how long the current high prices would last, with some of them expecting that demand would begin to fall off in the middle of the second quarter when buyers become less worried about a shortage of material.

“We’ve seen a fair amount of actual demand, but a significant amount of the larger inquiries have been because of a fear of shortages,” the first distributor said.

A trader on the US East Coast, however, said that prices will remain high at least until the fourth quarter of 2018 due to a combination of shrinking inventories and the Section 232 tariffs. “Duties are in place and old inventories are diminishing as the days go by,” he said.

European stainless steel transaction prices in the second quarter are likely to be supported by strong raw material prices, which will be passed on to customers through the monthly alloy surcharge mechanism used by the region’s stainless steel mills.

But stainless steel base prices could remain under pressure throughout the quarter because of the wide price gap between European and Asian imported material, and relatively high stock levels. These factors will temper the effects of higher raw material costs on transaction prices.

European alloy surcharges for April deliveries of grade-304 cold-rolled (CR) stainless steel sheet have risen amid further increases in nickel costs, making it the third consecutive month with a rise in the surcharge.

The April alloy surcharge for 2mm grade-304 CR stainless steel sheet – based on data published by Outokumpu, Acerinox and Aperam – is €1,336-1,407 ($1,643-1,730) per tonne. This is up by €33-54 per tonne month-on-month from March’s surcharge of €1,303-1,353 per tonne.

Furthermore, the European charge and high-carbon ferro-chrome benchmark settlement increased to $1.42 per lb for the second quarter of 2018, up by 20.3% from the first-quarter settlement of $1.18 per lb.

This price increase will only be partially factored into the cost of stainless steel products through May’s alloy surcharge values, before being fully passed on into June’s surcharge.

Metal Bulletin’s base price assessments for flat stainless steel products in Europe weakened due to pricing pressure from cheap imports and high stock levels on April 6.

“Everyone is well stocked, including the mills, so buyers can wait before they need to buy,” one distributor in the Benelux region said. “There is also a lot of imported material around.”

In contrast, lead times for stainless steel long products are around four months, with demand strong.

Market participants do not expect any short-term effect on prices from the decision on March 26 by the European Commission (EC) to launch a safeguard case into 26 carbon and stainless steel products imported into the EU.

The investigation will, in principle, be concluded within nine months.

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