Global steel prices rise $30/t m-o-m, what are the factors driving it?

• Global benchmark HRC export offers rise m-o-m in Dec
  
  
• China's eased Covid rules, Japan's appreciated yen fuel price rise
  
  
• EU returns to buying after protracted silence
  
  
• Prices may rise further in Q1CY23 on higher demand
  
  

Morning Brief: Global benchmark hot rolled coil (HRC) export prices have risen by $30-35/tonne (t) m-om in December, 2022, reveals SteelMint's data. China's average FOB prices are up by $35/t in the current month to $585/t ($550/t in November). Similarly, Indian HRC export offers have risen m-o-m by around $15/t to about $545/t against last month's average $530/t.

It may be mentioned that the entire global seaborne trade volume was about 420-430 million tonnes (mnt) in 2021. In 2021, China was the top exporter with 66.91 mnt. Japan was second with 30.63 mnt. Exports from Russia stood at 30.29 mnt while that from India stood almost 18 mnt. Thus, when benchmark HRC offers from the four major countries rise, they provide direction to other exporting countries and influence market trends.

Why are global export offers rising?

1. China opening up post Covid restrictions: With China easing Covid controls, demand seems to be rebounding and steel prices have reached the bottom of the barrel because they are going up from here. The world's largest steelmaker, Baosteel, and also Shagang have already announced sharp hikes. Baosteel raised monthly HRC prices by RMB 200/t ($29/t) and that of heavy plates by RMB 50/t ($7/t). Moreover, prices of cold rolled coils (CRCs) and hot-dipped galvanized (HDG) products are up by RMB 150/t ($21/t) for January 2023 sales. Shagang's rebar prices have been raised by RMB 100/t ($14/t).

Rising iron ore and coal prices, coupled with improving market sentiments, have helped the mills to raise prices. For instance, the benchmark Fe62% fines index rose by $15/t m-o-m.

2. EU buyers return: Buyers from the European Union (EU) have broken their protracted silence to return to the market ahead of the Christmas and New Year holidays. Around 50,000-60,000 t of HRCs have been booked for exports to the EU from Indian mills, SteelMint learnt. But Indian mills have kept their offers on hold this week even though they secured adequate bookings.

3. Currency appreciation: Japanese exports allocation have fallen m-o-m on the back of the national currency yen's (JPY's) appreciation, raising export offers in the process. The JPY has appreciated to 135.581 versus the dollar (USD) from JPY139.601 a month ago and JPY 147.301 three months back. As a result, mills were seen withdrawing export offers this week since overseas sales are not viable anymore. Also, with lesser supply in the market, prices have headed north.

4. Production cuts by SE Asian mills: SE Asia's leading steel producing country - Vietnam has registered a drop of 9% y-o-y in its finished steel production during Jan-Oct'22. With Vietnam's domestic HRC sales continuing to remain slow, steel major Hoa Phat's crude steel production in November was down 30% m-o-m and 43% y-o-y in November at 0.384 mnt. Vietnam's steel exports dropped to 6.39 mnt in January-October, 2022, against 10.91 mnt in the corresponding period last year. Similarly, imports declined 6% to 9.88 mnt in the same period. Imported and domestic offers in Vietnam are strongly correlated and both are seen rising. A lesser supply in the export market against a backdrop of EU's return is also a reason for the rise in global seaborne prices.

Outlook
Global steel prices have bottomed out and these may either remain range-bound or increase from here. And, for two reasons. One is the global currency appreciation and two is that inflation has abated somewhat, allowing buyers to return to the market. As per reports, the Euro area annual inflation is expected to be at 10% in November, down from 10.6% in October.

Reports indicate that demand from Europe is expected to pick up from Q1 of calendar 2023, an expectation that is making mills there raise their domestic offers.