Vietnam: Imported HRC offers rally w-o-w over supply constraints

Imported HRC offers to Vietnam have shown a significant increase of $30-60/tonne (t) over the previous week. Supply constraints from these two active exporters amid curtailed production and an increase in Chinese domestic HRC prices pushed the offers upward. However, demand in Vietnam's domestic market continues to remain low for imported HRCs.

Current HRC offers from major exporting countries:

• India: HRC (SAE1006, boron-added) $620-630/t CFR compared with $590-600/t CFR in the previous week.
  
  
• China: HRC (SAE1006) offers last heard were at around $625-630/t contrasted against the previous week's $570-590/t CFR.
  
  
• China: 5,000 t of HRC (SS400) were heard booked at $610-618/t CFR for delivery in early or mid-September. However, the deal could not be confirmed till the time of publishing the article.
  
  

Supply constraints push up offers despite low buying interest
There are inconsistencies in offers from Japan, South Korea and Russia, while Chinese and Indian mills are reducing their output which has led to supply issues. Chinese mills are producing less to counter the slow demand, and low margins while maintaining the push towards carbon neutrality. Meanwhile, Indian mills have opted for maintenance shutdowns to counter limited demand in both domestic and overseas markets and continual decline in offers till end-July.

Thus, mills from India and China are eyeing higher offers, with tightening of export allocations and improving sentiments in their domestic markets. While domestic trade level prices of HRCs in India are stabilizing, slight improvement is visible from China.

Hike in Chinese domestic HRC prices on rising steel futures: Chinese domestic HRC prices increased by RMB 60/t to RMB 4,050/t today against RMB 3,990/t assessed on 5 August. Prices are on an ex-Tianjin basis, inclusive of VAT @ 13%.

Also, Chinese HRC SHFE futures increased by RMB 76/t to RMB 4,066/t in today's closing, against RMB 3,990/t on 5 August. The same is up by RMB 22/t from RMB 4,044/t as on 1 August. This uptrend also boosted offers from the Chinese mills this week.

Vietnam's end-user demand yet to pick up: Demand from the domestic market in Vietnam is yet to pick up. Buying interest has been impacted by various factors:

• Continuous decline in offers from China since April, and from India since May this year.
  
  
• Vietnam's economy recovered slowly from the third and fourth Covid waves which spanned the entire calender year of 2021.
  
  
• Decline in value-added HDG exports to the US and Europe due due to inflationary pressures in the former and quota restrictions from the latter.
  
  

Moreover, the onset of monsoons is currently keeping demand in check with limited activities from the construction sector. This is also impacting demand from the yellow goods industry along with that from the heavy commercial vehicles (HCV) segment.

Hoa Phat's output and sales drop in July: Hoa Phat released the operational update for July today. Sales volumes (including construction steel, HRC and billets) toppled by 6% m-o-m to 526,000t as against 560,000t in June 2022. Moreover, the company's crude steel output was down by 3% to 600,000t in July compared with 621,000t in the preceeding month. This indicates low buying interest even from domestic producers in the country.

Onset of the southeast monsoon dented demand further which was already reeling under the impact of value-added steel products being brought under the EU's country-specific quarterly quotas. Sales of HRCs in July dropped to 150,000t compared to 202,000t a month ago. In January-July 2022, HRC sales amounted to around 1.6 mnt.

In January-July 2022, the company churned out 4.9 mnt of crude steel, while sales aggregated to 4.5 mnt- 5% higher than in the year-ago period.

Near-term outlook
Vietnamese buyers are now eyeing price announcements for October and early-November sales which are likely to be made in the upcoming week. Moreover, supply constraints from India and China amid curtailed production are likely to keep the offers supported from these countries in the near term.