How will global steel exports fare in the short term?

• Demand low, while high input costs prevent price crash
  
  
• China, Japan turn aggressive in exports but offers are low and range-bound
  
  
• Short term looks challenging
  
  

Morning Brief: With global steel demand hit hard by inflationary pressures, steel exporting countries are under pressure to sell overseas. Global demand is low and production cuts are not enough to balance out the lack of demand, it is understood. The only reason prices are not crashing is the high raw material and energy cost push.

Mills globally want to increase prices but no buyer would accept a price hike and thus export offers are lumbering in a narrow range.

Data maintained with SteelMint reveals that Chinese hot rolled coil (HRC) FOB offers upped a mere1.50% in October to $590/tonne against $580/t in September. Japanese offers eroded 4% to $540/t m-o-m ($565/t in September) while Indian offers hardly showed any change at around $580/t in the current month.

Demand in most countries has dropped due to high prices. "Buyers, individual home owners etc are delaying steel purchases due to high prices," says a source.

"Asia used to export substantially to the European Union and the US but that has sharply dropped. Thus, mills are now trying to survive on domestic demand," says a source.

China
Plagued by the real estate market crash since last year and periodic Covid surges, China has been trying to encourage exports as a survival strategy.

Due to the re-emergence of Covid cases, China is becoming active in exports yet again. SteelMint heard recent HRC offers at $630/t CFR Turkey. This Asian giant has seen its export offers dropping steadily since April's $900/t FOB levels.

China has a value-added tax on exports unlike other countries and which is akin to the export duty levied in India, which makes its export cost high. "China exports mainly coated, HRC from coast-based mills," informs a source. The current cost of production of the average Chinese mill is around $580/t.

"The Chinese yuan's depreciation is making things interesting - and may be, we will see the country soon in exports, but not yet," a source said.

It also seems China is failing to deliver a proper stimulus. No systemic bail-out for the real estate sector is in sight, says an analyst while "housing new starts" are down 45% y-o-y in recent times. New starts are a significant pulse on demand since consumption in the early part of the construction is the most steel-intensive.

Japan
This Asian exporter's offers have also been falling steadily since April. But it is looking aggressively at exports. SteelMint heard Japanese mills have been active in HRC exports in the Middle East (with offers at $595-600/t CFR) while Indian offers to the same region are hovering higher, at $620-640/t CFR. SteelMint assessed two reasons for Japan's export interest. One is the sliding yen. It recently hit a 24-year low against the dollar. A sliding currency would make exports more lucrative for Japanese mills. Two, Japan's home demand is not improving at present. Automotive/white goods pull is weak from consumers. "The allocations of Japanese HRC exports have changed... earlier the EU was an active importer but now with this region slowing down, Southeast Asia and South Asia have come into focus," revealed an export source.

India
Sources observe that the much-discussed 15% export duty will not be removed in the short run to avoid inflationary pulls.

Apart from the Middle East, Indian mills are also exploring Vietnam at offers around $610-620/t CFR. Interest from the former is tepid while buyers in the latter await their domestic mills' price announcements.

Export indications for boron-added HRCs to the EU hover at $670-690/t CFR Antwerp but demand is a challenge.

With the HRC export index dropping to $580/t FOB in the latest assessment, mills are focusing on the domestic market since the latter is offering greater price viability, post-the recent hikes.

European Union
The European Union has been characterized by unsustainable energy prices. As a rule of thumb, to produce 1 tonne of HRC, energy consumption is 0.2 MWh for integrated mills, 0.5 MWh for EAFs, and 0.2 MWh for rolling mills. Thus, a total of 0.4 MWh for BFs and 0.7 MWh for EAFs. Mills in Europe, under huge cost pressures, are shutting shop temporarily to tide over the crisis. Higher costs will result in higher steel prices and relatively higher import volumes.

But the loss of a key trade partner in Russia has aggravated the EU's supply scenario, creating further scope for imports. War-torn Ukraine's exports to the EU are hamstrung by logistic issues.

Global seaborne steel trade snapshot
The total global steel trade in 2021 touched 416 million tonnes (mnt), up 11% from 374 mnt in the previous calendar year, data collated by SteelMint reveals. However, this volume is still lower than the pre-Covid 2019 level of 435 mnt (worldsteel). Flat products commanded the largest 53% share in the total seaborne steel trade in 2021. The EU was the topmost importer last year, followed by China and the US.

Outlook
So, what will the short term look like for steel exporters? "Difficult" stressed a source.

The low demand regime will continue along with the high cost of production. The supply cuts will prevail while currencies weaken against the dollar and exacerbate inflation. These factors will collude to keep trading volumes lower.

Meanwhile, there will be low inventory as buyers are unwilling to restock due to economic uncertainty and losses incurred in recent months.

Some circles feel the current steel demand is so poor that global steel supply needs to correct further downward to ignite a positive price cycle. May be, in the medium term, from say a rock-bottom of $520/t FOB in Q4, export prices could hit up to $650/t FOB in Q1, 2023?