South Korea: Factors that can trigger rebar price fluctuations in peak season

South Korea's steel retail industry's expectations for the remaining first quarter (Jan-Mar'22) are growing. In terms of prices, considering the increasing volatility in the global markets, an upward trend is uncertain.

There are certain factors that can influence South Korea's rebar price fluctuations in the upcoming peak season:

Upside factors
1. Peak season and major maintenance: January is known as the weakest season of the year which is coming to an end. This alone raises the expectation of an increase in demand and a rise in market prices.

As steelmakers' focus on winter maintenance in February, speculations increase since there is ample room for decrease in supply and demand. It would be different if steelmakers have abundant stockpiles, but this is not the case.

The inventories with steelmakers are estimated to be around 220,000-240,000 tonnes (t), higher than normal. However, considering this is only January, it is quite low.

2. Ferrous scrap price: Prices of ferrous scrap, which are showing an unexpected rise, are also one of the important factors that can lead to a rise in rebar prices.

In winter, it is difficult to collect iron scrap. Therefore, overall scrap generation has decreased and its demand is expected to increase steadily due to the increase in the charging ratio of iron scrap in blast furnaces as steel mills try to achieve their carbon neutral goals. In line with this, it is expected that prices of ferrous scrap will rise.

Import volumes of iron scrap are not much, which also helps in cushioning domestic iron scrap prices. Therefore, market participants expect prices to rise.

3. Machinig order volume: The unprecedented boom in machining order volumes gives a glimpse into future demand growth and a rise in the prices of rebar.

The number of orders which had been contracted were large enough to run a processing plant for as long as six months or an year, a saturated state.

Eventually, if demand increases, supply requests to the secondary market will follow, which will trigger a price rise.

Downside factors
1. Increased inflow of imported goods: It is expected that Chinese production dynamics rather than Japanese or Taiwanese, will play a bigger role.

In case of Japan, contracts have been signed for shipments from end-Mar-Apr'22 with some clarity on the volumes.

Only Chinese volumes cannot be predicted. The market buzz is that China's steel production and exports may rise post-Bejing's Winter Olympics in Feb'22 which will also raise the possibility of excessive influx of imported products into Korea. However, regardless it is made in Japan or China, offers continued to increase in Jan'22 - which is a low season.

2. New rebar mill: A rebar rolling line at Chilseo steelworks in Haman, Gyeongnam has been under development since last year. It is currently in the final stages with a completion ceremony to be held on 25 Mar'21. Commercial production is expected to begin in May or the first half at the latest after the rebar factory is completed.

The annual output of the Korean special steel rebar rolling line is about 800,000 t. With the commissioning of the eight rebar mill, many changes are expected in terms of supply and demand, and above all, attention is focused on which direction prices will take.

Speculations are that new entrants may implement a strategy to increase competitiveness in terms of prices in order to establish themselves which is likely to impact prices of rebar in the near future.

Note: This article has been published under an exchange agreement between SteelDaily and SteelMint.