Global HRC export offers fall in April; what to expect in near term?

• China's crude steel production increase weighs on prices
  
  
• Ramadan, banking crisis, high interest rates impact global demand
  
  
• Raw material prices recede, fail to support finished items
  
  

Morning Brief: Global benchmark hot rolled coil export offers have declined m-o-m in April 2023 across China, India, and Russia and have remained somewhat stable in Japan and South Korea, reveals data maintained with SteelMint.

Chinese offers have fallen by $20/tonne in April so far to $673/t compared with $693/t in March. Offers from Indian mills (for Middle East) are down $12/t to $700/t against $712/t last month.

All offers are on FOB basis.

Why are global offers falling again?

China's crude steel production rise weighs on prices: The world's top-most steel producer and consumer has been seeing a rise in output. This is causing a headache to authorities since there are decarbonization goals to be met. In a double whammy, consumption has not been in step with production. But despite the mills' squeezed margins -- because of plateaued demand -- they are unwilling to cut down production in a desperate bid to retain market share.

Daily crude steel output among member mills of China Iron & Steel Association (CISA) in the first 10 days of April hit an 11-month high of 2.32 million tonnes/day. The average daily output over April 1-10 was higher by 2.7% or 61,300 t/d from late March. Mills kept their production high during the period under review in a bid earn revenue despite the recent weakening in domestic steel prices. CISA estimated that China's total daily crude steel output averaged 2.99 million t/d during early April, up 1.3% from late March.

In March, China's total production touched 127.25 mnt, up 8% y-o-y. Over January-March, production rose nearly 6% y-o-y to 332.59 mnt.

Meanwhile, Chinese finished steel prices have been softening since early April, mainly due to the weaker-than-expected demand during the traditionally peak season.

As a result, a few major mills rolled over their prices for May deliveries. For instance, Baosteel, the world's top steel manufacturer, rolled over its April HRC prices for May sales on the back of "subdued domestic demand", falling domestic and global HRC prices.

China Steel Corporation (CSC) too rolled over prices of HRCs, HR plates, CRCs and hot-dipped galvanised steel coils for May deliveries, in an attempt to remain competitive when others too were rolling over prices.

All the above factors have weighed on export offers.

Holidays, Ramadan keep India offers low: Easter holidays in Europe and Ramadan in Middle East conjoined to keep offers low. Although mills' offers to the European Union stayed firm at $830-840/t FOB, the market was closed because of the Good Friday and Easter holidays. That apart, offers to the UAE fell by $11/t w-o-w amid a sluggish Ramadan month while Vietnam is still silent even as Chinese mills lured with offers at $620/t CFR.

India's domestic demand remained elusive amid an extended period of tight liquidity, belying expectations of a rebound, impacting export offers too.

Global demand subdued: Global steel demand has been down as indicated by declining imports and exports and lack of supply-demand balance in the global long products market, as per IREPAS. "The reduced total production in 2022 is carrying over into 2023 and is able to satisfy actual consumption. This has resulted in an aversion to imported steel due to the lack of certainty, leading to a decline in the scope of international business," IREPAS' latest Short Range Outlook says, adding that EU' domestic mills are fighting for orders in a bearish market.

Lack of adequate rebound in Chinese demand, the global banking crisis and global political tensions are not motivating investors or end-use steel demand.

In the US, the banking crisis has impacted mid-sized banks in which steel end-users have decent exposure. Liquidity is already squeezed and high interest rates are adding fuel to fire.

Raw material prices fall: Raw material prices fell in April, failing to support finished items.

• Scrap - Benchmark imported melting scrap prices CFR Turkiye have dropped around $16/t m-o-m so far to $437/t levels.
  
  

Turkiye's construction activities are yet to pick up. Plus, Ramadan and the upcoming elections (in May) have turned things slow here.

• Coal - Coking coal prices have fallen steeply m-o-m. Prices of the premium HCC, CFR India, have fallen to around $306/t levels from $362/t a month back. Muted Indian and Chinese demand amid adequate supply resulted in the price fall along with the drop in Chinese domestic coke prices.
  
  
• Iron ore - Weak steel demand sentiments and lower profit margins impacted iron ore prices. The benchmark Fe62% imported into China has fallen by $6/t m-o-m so far to $121/t, propelled by dull finished steel demand from the giant.
  
  

Outlook

The near-term outlook on steel demand and prices appears to be subdued. Hence, export offers may also remain low.

However, mills and traders need to assess the domestic HRC shortage in the EU amidst ArcelorMittal's announcement of disruptions at its works in Spain and France due to blast furnace fires.