Global HRC prices continue to weaken in May. What lies ahead?

Chinese, Indian export prices fall by 12% m-o-m

All major steel mills revise list prices lower in May

Higher interest rates, Chinese exports may dampen prices further

Global steel prices are showing a negative correction in May 2023 as rising interest rates worldwide and anti-inflationary measures take a toll on demand. China's April macroeconomic data has induced further uncertainty about demand prospects in the near-term, SteelMint notes.

Bellwether HRC steel prices have slipped in May, as the key exporting nations - especially China and India - witnessed a sharp fall in prices to the tune of $75-80/t m-o-m. China's export HRC prices fell by 12% m-o-m in May to an average of around $580/t FOB from around $656/t in April. India's export prices of HRC dropped 12% m-o-m to $612/t FOB in May from $695/t last month, as per SteelMint data.

Japanese prices of HRC for exports have also fallen by over $50/t m-o-m, as per data.

Mills slash prices

All major steel mills have reduced HRC prices this month. Baosteel, the listed arm of the world's largest steelmaker China Baowu Steel Group, has slashed its list prices by RMB 200/t ($29) for domestic sales in June, after having rolled over list prices for May sales. China's domestic HRC prices have fallen by over $50/t since mid-April.

Vietnamese steel major Formosa Ha Tinh announced on 17 May that the June/July-shipment price for non-skin-passed SAE 1006 HRC would be set at the equivalent of $620-623/t CIF Vietnam, down from $642/t CIF on 21 April. Its new skin-passed HRC prices have been set at $625-628/t.

China's Shagang has cut HRC prices by over $43/t for May sales, while Taiwan's CSC has reduced prices by $65/t.

Indian steel mills have cut HRC prices up to INR 2,500/t ($31) for May and SteelMint's India Flat Steel Composite Index dipped 0.6% w-o-w to 154.7 points (156 points) on 15 May - much more sharply than longs - on global weakness, falling raw material prices and export offers.

Why are prices slipping?

Subdued demand: China's post-COVID recovery, especially after the New Year holidays, has not been as strong as anticipated. Domestic steel demand weakened from mid-March onwards due to declining investments in real estate and construction. New project start-ups declined by over 20% y-o-y in April, while real estate investments fell by over 6% on the year, as per NBS data. Yet steel production has grown on softening raw material prices and improving margins, further impacting prices. Global demand has been impacted by rising inflation and interest rates and despite some positives such as energy prices and shipping costs coming down, the global market is still fluctuating and unstable. Prices in the EU, on the other hand, have been impacted due to cheap imports.

Softening raw material prices: Largely due to subdued China demand, sentiments in the steel raw materials market have turned bearish. Australian mainstream iron ore fines (Fe62%) prices have fallen by over $20/t since 1 April. In fact, prices have recovered a bit of late. Premium coking coal prices on a CNF India basis have dropped over $80/t since 1 April on weakening Asian demand amid steady supplies. Ferrous scrap prices (benchmark CNF Turkiye) have also dropped $65/t since 1 April due to weak construction demand across the world from China and South Korea to Turkiye and the EU. This has impacted steel prices in general.

Outlook

China's NDRC is weighing a cut in total crude steel output by 2.5% in 2023 to stabilise the domestic market and prices and control emissions. Any reduction in crude steel output is expected to keep domestic steel prices supported. China's steel production increased by over 4% In January-April this year to around 355 mnt and higher supplies are weighing on prices and margins amid weak demand. While manufacturing sector growth may remain slow due to weak exports, pick-up in infrastructure investment is expected to drive HRC demand.

However, continued weak domestic demand in China and increasing steel exports - as witnessed in Q1CY23 - is bound to impact global prices negatively. Global inflation may keep steel demand and prices subdued in the near-term, while patches of recovery are likely such as in Turkiye's construction sector after the 28 May elections. Despite steady domestic demand, the shrinking differential with landed prices of imports in India is expected to keep domestic HRC under pressure in Q2CY23.