OUTLOOK: Asia flat steel market poised for further downtrend

Asia’s flat steel market is expected to continue to see declining prices amid persistently weak demand and excess supply in the region, market sources told Fastmarkets MB this week.

Spot prices for various flat steel products are at intra-year lows, falling steadily after peaking earlier this year.

The bearish sentiment will prevail for the time-being, market sources said, with buyers taking the opportunity to bid lower in the face of weak downstream demand. Flat steel supply is also abundant, with mills outside Asia trying to offload materials into the region.

Chinese hot-rolled coil cargoes have resurfaced in the market in recent weeks after domestic prices in China started falling, which led sellers to seek opportunities abroad.

Soft Chinese demand
Market participants in China are expecting HRC prices to fall further, with buyers refraining from restocking while mills resume production after performing maintenance recently.

A trader in Zhejiang province told Fastmarkets MB that more Chinese mills were agreeing on prices only when cargoes were delivered, rather than confirming them with buyers when orders were made. This approach, which reassures buyers that they were not losing out amid a downtrend while awaiting delivery, has helped these mills secure more orders amid the weak demand.

The key downstream industries of automotive and household appliances are also experiencing slowdowns, with Vice Minister for Industry & Information Technology Xin Guobin recently describing the slow growth in the country’s automotive industry as the “new normal” over the next two years.

Trading activity had been “very low” in recent weeks, traders said, because buyers were still taking a wait-and-see approach due to expectations of prices dropping further in the face of increasing supply.

“Production rates are expected to speed up once major flat steel producers such as Ma’anshan Iron & Steel and Wuhan Iron & Steel resume production after maintenance,” the trader in Zhejiang said.

The MB fob China HRC Index fell to an intra-year low of $532 per tonne on Thursday October 31, compared with a peak of $620.81 per tonne on March 6.

Vietnamese supply
Demand for re-rolling-grade HRC in Vietnam – a major import market – has also weakened, with consumers staying on the sidelines while waiting for offers to drop further.

Offers for Russian HRC had fallen to $540 per tonne cfr on Wednesday morning, compared with $545 per tonne cfr last week.

This led buyers to lower their bids because they expect the Russian mill in question to continue to try to offload its cargoes in Asia due to weak demand in its own domestic market toward the year-end, as well as economic sanctions and tariffs limiting its sales outlets.

Buyers are negotiating transactions at $533-535 per tonne cfr Vietnam with sellers of Russian small coil that weighs up to 14 tonnes. Mainstream HRC typically weighs up to 23 tonnes. There is market chatter suggesting that deals have been done at $530-533 per tonne cfr Vietnam this week, but this could not be confirmed at the time of writing.

Ample supply from domestic producer Formosa Ha Tinh Steel Corp has also fulfilled a large proportion of domestic demand, including that from major downstream re-rollers. The steelmaker, which operates two blast furnaces, has sold all of its December-delivery cargoes, consisting about 250,000 tonnes of HRC to local re-rollers, and 50,000 tonnes of the product to regional buyers.

Fastmarkets MB’s weekly import price assessment for 2-3mm SAE1006 HRC and equivalent grades of HRC in Southeast Asia has fallen steadily to $545-555 per tonne cfr on October 29 from a peak of $635-650 per tonne cfr on March 5.

Abundant slab
Import prices for slab in Asia are also expected to mirror the downtrending HRC market.

Re-rollers in Southeast Asia are waiting to see the outcome of negotiations for the semi-finished product between mills in the Commonwealth of Independent States (CIS) and buyers in Taiwan before deciding to book any materials, market sources said.

A major buyer in Thailand is also not in the market because it has sufficient inventory to last until January.

As such, slab supply in Asia is likely to remain abundant and at low prices, despite the exit of Brazilian materials in October.

Market participants also expect offers from the CIS to fall further due to weak demand in the other key markets for CIS slab, such as Italy and Turkey.

At the same time, cheap cargoes from Iran are making their presence felt in Asia due to the United States’ sanctions against the Middle Eastern country.

Fastmarkets MB’s weekly import price assessment for slab in Southeast Asia and East Asia has fallen almost continually from a peak of $575-590 per tonne cfr on April 2 to $470-480 per tonne cfr on October 29.

Poor appetite for CRC, HDG
Downstream, thin demand and falling domestic prices in China led to a sustained decrease in export prices for Chinese cold-rolled coil and hot-dipped galvanized coil in recent weeks.

Overseas demand had been falling amid a weakening of currencies in the major export destinations for these Chinese products, such as Southeast Asia, sources said.

Bearish sentiment has also intensified among buyers. Few bids were received for CRC and HDG over the past week, with buyers holding off from making purchases while waiting for Chinese prices to drop further.

“Our overseas customers are very unwilling to buy now,” a Tianjin-based trader said on Tuesday.

Fastmarkets MB’s export price assessment for Chinese SPCC 1.0mm CRC for the week ended Tuesday was $570-585 per tonne fob China, down from a peak of $635-645 per tonne on March 6.

Its weekly export price assessment for Chinese 1.0mm 120g zinc-coated HDG was $620-630 per tonne fob China on Tuesday, down from a peak of $700-710 per tonne on March 6.