GLOBAL STEEL SLAB WRAP: Prices stay high despite weaker finished steel, raw materials markets

Steel slab prices held firm in most global markets in March, despite falls in the prices for raw materials and flat rolled steel in China.

Prices were maintained by continuing supply problems in Ukraine and high offers from Brazilian and Russian producers. But market sources expect a correction in slab prices to come soon.

In the CIS region, prices were largely stable last month due to lower supply volumes from Ukraine and Russia.

Slab supply was restricted by railway blockages set up by pro-government forces in east Ukraine. Several companies have been forced to halt production because of the action, which is assumed to have been taken to damage the economies of the areas in eastern Ukraine that are under the control of pro-Russia separatists.

Ukraine’s Industrial Union of Donbass (ISD) is not offering slab because its Alchevsk mill, in the eastern Luhansk region, has been idled since February.

The supply situation was aggravated by reduced availability from Russian mills, which had already sold out most of their production during the month, with only occasional offers being heard.

Most mills in Russia have chosen to use their production to secure supplies of semi-finished steel for their own assets within the country and overseas.

In the first weeks of the month, Russian producers were receiving bids at $415 per tonne fob from European customers, while Turkish clients were bidding $400-415 per tonne fob.

But offers from the country were heard at $425-430 per tonne fob Black Sea.

Amid the limited supply, clients in Turkey, Italy and the Czech Republic raised their bids to around $440 per tonne cfr, with freight rates of $15-17 per tonne.

But strong domestic finished steel prices in Europe helped CIS-based steelmakers to hold their price positions at the end of March, despite declining coil prices in China.

In Europe, most recent bookings were reported at $430 per tonne fob Black Sea, with bids for CIS-origin slab heard in the range of $420-425 per tonne fob Black Sea.

As a result, Metal Bulletin’s weekly price assessment for CIS-origin slab was $420-430 per tonne fob Black Sea on March 27, compared with $415-430 per tonne on February 27.

In early March, Russian steelmaker Novolipetsk Steel (NLMK) announced plans to increase slab production by at least 1 million tpy by 2019.

To reach this target, it plans to increase slab production at its existing facilities.

The most likely destinations for the additional production would be the company’s own re-rolling assets in Europe and North America.

Latin America
In Latin America, slab export prices increased slightly during the month, as supply issues worldwide and demand from the USA helped Brazilian producers to maintain their offers at high levels.

Metal Bulletin’s weekly assessment of Latin American slab export prices was $420-425 on March 31, up from $400-415 on March 3.

Prices started the month under pressure from lower raw materials costs, with bids being reported as low as $400 per tonne fob.

But producers have maintained their prices at a minimum of $425 per tonne fob, as problems in Ukraine have reduced the options for potential slab buyers.

“The effect of production issues in Ukraine is being amplified by the reduced size of the slab market,” a source said.

Companies were offering Brazil-origin slab to the USA around $415-420 per tonne fob, according to sources, with at least one deal being closed.

In the last week of March, slab producers in Brazil were heard to be prioritising offers to Europe, because lower freight rates allowed companies to secure a higher price on an fob basis.

So far, however, no deals have been closed.

“Companies in Europe are not in a rush to buy slab material now,” a source said.

Southeast Asia
As a result of pressure from slab producers in Brazil and the CIS, slab import prices in Southeast Asia were also marginally up last month.

Metal Bulletin’s weekly price assessment of Southeast Asian slab imports reached $430-440 per tonne cfr on March 27, up from $420-435 on February 27.

In early March, the Asian slab market started an upward trend amid higher offers from steelmakers in the CIS and East Asia – the latest being as high as $460 per tonne fob.

Meanwhile, Iranian mills started the month offering low-priced material at $410 per tonne fob, with rumours of bookings being agreed at even lower prices.

In Indonesia, no import deals were heard due to technical issues at state-owned steelmaker Krakatau Steel’s hot strip mill.

The company skipped its monthly slab tender for May shipment cargoes, as a result of maintenance work at its 2.4 million-tpy hot strip mill, scheduled for May and June.

Krakatau’s slab purchases may total as much as 200,000 tonnes per month, but not all of this will be imported.

With Krakatau out of the market, another slab importer decided to buy 30,000-40,000 tonnes of material from domestic producers, as offers from overseas were considered to be too high.

“Suppliers [from Brazil and the CIS have been giving] a general price idea of $445-450 per tonne cfr Asia for June shipment,” one regional market participant told Metal Bulletin.

In Thailand, rumours spread in the market in late March that a 40,000-tonne cargo of Iran-origin slab was being held at port in Thailand, because of issues between the vessel’s owner and its crew.

However, sources in the Thai market believe the issue will not affect future slab sales to the country.

In late March, Iranian companies were absent from the market due to the Iranian New Year holiday, leaving the market at a standstill.

Slab offers from Iranian companies were recently heard below $400 per tonne fob to Southeast Asian clients. But buyers in Asia were still waiting for major CIS and Brazilian suppliers to come out with their offers for June shipment.

In Malaysia, Eastern Steel will begin planning to resume slab production, which has been suspended since October 2015 due to weak demand and prices, controlling group Hiap Teck Venture said in early April.

The resumption plans will be made despite a deadlock in talks between Hiap Teck Venture and China’s Angang Group regarding a sale of Eastern Steel’s shares.

Looking ahead
Looking to the future, market participants are concerned that the drop in prices for flat steel products in China will cause a downturn in the slab market.

Metal Bulletin’s weekly assessment of export prices of hot rolled coil (HRC) from China fell to $470-480 per tonne fob on April 4, down from $510-515 per tonne on March 3.

Chinese heavy plate export prices fell to $470-480 per tonne fob on April 4, from $495-500 per tonne fob on March 3.

In early April, bids for Chinese heavy plate were heard as low as $460 per tonne fob.

Metal Bulletin’s index of spot market iron ore prices dropped to $81.54 per tonne cfr Qingdao on April 5, down from $91.26 per tonne cfr Qingdao on March 1.

“Slab prices will have to fall at some point,” a source involved in the slab market said.

“With the continuing fall in prices of raw materials and Chinese HRC, we must expect some correction in slab prices, since the correlation is very strong – especially in the case of finished steel prices,” another source said.

The lack of supply from Ukraine has helped to keep international slab prices high for a “longer than expected” period, the source added.

“HRC prices are going down, but slab producers resist lowering their prices,” an Iranian source said.

The poor availability of slab in the global market should limit the correction in prices, however, according to one market participant, who said that “there are reasons to be optimistic”.

Juan Weik in Singapore and Vlada Novokreshchenova in Dnepr contributed to this report.

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