No jump in finished steel prices to come from reduced slab from CIS, Brazil

High prices for steel slabs from the CIS region and Brazil are unlikely to cause further price increases in the Turkish coil and Italian heavy plate markets, according to market sources.

The increase in slab costs was supported by reduced availability of the material, and has already been reflected in finished steel product prices in two main outlet markets – Turkey and the European Union. Further rises will probably not be accepted by buyers.

In addition, slab prices are not expected to show any significant increases in the near future, the sources said.

CIS slab
The CIS export slab market started 2017 with a price rise, going up by $25 per tonne in the first half of January to $530-535 per tonne fob Black Sea.

Sources cited reduced availability of the material as well as lively demand from Turkish and European customers as the two major reasons for the uptick.

According to market participants, reduced availability in the Black Sea market was a result of scheduled repairs at Russia’s largest slab supplier, Novolipetsk Steel (NLMK), as well as good demand from its own re-rolling units overseas.

NLMK owns three plate mills and two strip mills in Europe with total capacity for 2.2 million tonnes per year of steel products.

In the United States, the company operates three assets able to produce 700,000 tpy of steel and 2 million tpy of various flat steel products, including hot-rolled, cold-rolled and coated materials.

In 2017, the producer sold a total of 6.73 million tonnes of slabs, up by 2% year-on-year, of which 4.21 million tonnes were shipped to its foreign subsidiaries and affiliates. This was 6% more than in 2016. Meanwhile, shipment volumes to third parties shrank by 3.89% year-on-year in 2017, to 2.51 million tonnes.

The company hesitated about forecasting whether slab shipments to foreign subsidiaries and affiliates will keep growing in the first quarter of 2018, saying that this will depend on market sentiment.

As for repairs, in January 2018, NLMK scheduled two maintenance periods – one at its basic oxygen furnace (BOF) No1, lasting for six days, and another at BOF No2, lasting for 20 days, the company’s spokeswoman told Metal Bulletin.

In February, the producer scheduled two other small repairs, she added, noting that these will not have any significant effect on its production program.

But NLMK was not the only CIS slab producer to schedule repairs for the first quarter of 2018. Ukraine’s Metinvest is believed to have a maintenance outage at one of its blast furnaces (BFs), which is likely to reduce available volumes in February and March, market sources said.

Metinvest has not provided any details about the outage or its possible effect on the slab market, however.

Meanwhile, some market participants believe that, even if the repairs have no significant effect on slab availability in the near future, they will influence the total amount of slabs shipped in 2018.

On Thursday January 29, market participants estimated the workable price for CIS-origin slab to be within the range of $530-540 per tonne fob, at which price recent deals to Turkey and Europe have been concluded.

According to the market participants, further price movements in the slab sector will largely depend on sentiment in the global finished flat steel market, especially in China.

But even if the upward trend does continue, the price is not expected to exceed $550 per tonne fob Black Sea in the near term, an international trader told Metal Bulletin.

Metal Bulletin’s China export hot-rolled coil (HRC) daily index was $577.10 per tonne fob on January 31, against $572.58 per tonne on January 22.

Brazil slab
Slab prices in Brazil have been increasing due to the low availability of the semi-finished product and the high costs of raw materials.

Prices soared to $530-540 per tonne fob in the week ended January 26, compared with $470-480 per tonne fob on December 29 last year.

Offers of Brazilian material to Europe have also been reported within this range, a price considered “possible” by market participants.

“Europe has been a frequent buyer of Brazilian slabs,” a source said. Much of this supply is destined to be used in the production of heavy plate, he added.

Most March-shipment volumes to Europe, booked during the month of January, are believed to have been sold at $520-530 per tonne fob.

But market participants believe there is a limited upside to Brazilian slab, because prices are already at record-high levels last seen in 2012.

“[Sellers] will seize this opportunity [to achieve high prices] while they can,” a source said.

The positive markets in Europe and in the US have been noted as one of the factors behind the firmness in prices.

But CIS-region producers benefit more from their proximity to the EU. “The biggest difficulty for Brazilian slab producers [in the European market] is competing with CIS-based producers,” a market participant said.

Italy plate
Italian re-rollers managed to achieve a price rise in their domestic plate market in late November last year, following a month of price decreases. And the principal factor behind the plate price rise was growing slab costs, according to market sources.

Metal Bulletin’s weekly price assessment for domestic grade-S235JR heavy steel plate in Southern Europe was €550-560 ($682-694) per tonne ex-works on January 31, up by about 9.9% since late November.

The assessment represented the latest transactions heard in the market.

The country’s producers continue to use the high slab prices from the CIS and Brazil as justification for pushing prices even higher. Their new targeted price is reported to be €580 per tonne ex-works, but no deals have been done at this level yet.

“We need to achieve further price rises for heavy plate to cover slab costs,” a representative of an Italian re-roller said.

“The mills want to get €580 per tonne ex-works for plate, claiming that this price is needed to cover high production costs,” an Italian trader said.

But despite the bullish mood among Italian re-rollers, buyers doubt that such a price rise will be achieved. They believe that current prices for heavy steel plate are already enough to cover rolling and slab costs.

“The mills are trying to raise the price as high as possible to compensate for a price drop in the fourth quarter [of 2017],” a second trader said. “The slab price rise pushed [plate] prices to their current level, but further increases will be driven more by speculation.”

Although slab prices might no longer be putting pressure on Italian plate producers, the positive trend in the EU coil market might support some positive corrections in European domestic plate prices in late February, according to market sources.

Turkey HRC
Market participants in Turkey believe that producers have increased their prices for flat steel products too fast since November last year, so they are not ready to accept any further sharp increases, even if slab prices continue to rise.

When asked whether slab prices will keep increasing, an executive at a Turkish steel producer noted that changes in the prices of scrap and slab are connected to each other, and that scrap prices directly affect flat steel prices in the US.

Flat steel prices in the US recently reached their highest point in the past 12 years, so slab prices should also increase, he believes.

Turkey produced 11.68 million tonnes of slab in 2017, up by 15.15% from the 10.15 million tonnes produced in 2016.

Several producers in Turkey – namely Isdemir, Toscelik, Colakoglu and Habas – have production capacity via the electric-arc furnace (EAF) route that is convertible between slab and billet. But the crude steel capacity of these mills is not enough to provide for their full capacity for rebar, wire rod and HRC.

As a result, the steelmakers have decided to switch between billet and slab production, depending on market conditions and the prices for imported semi-finished steel materials.

Demand for flat steel in Turkey is strong due to the launch of new cold-rolled coil (CRC) producers, and strong local demand from other industrial sectors. The country’s main sources of imported slab are Russia and Brazil.

An executive at a Turkish steel producer noted the fact that China has decreased its planned steel export volumes for 2018, while the strong demand for flat steel in the EU and the US has affected flat steel prices positively, because demand for locally produced flat steel is also strong in Turkey.

He believes that price increases will continue unless China makes some unexpected move in the market.

HRC prices have been increasing in Turkey since late November 2017.

The weekly price assessment for Turkish domestic HRC was $550-560 per tonne ex-works on November 24, 2017, but had risen to $630-640 per tonne ex-works by January 31 this year.