Global seaborne steel prices at 18 months low. What are the driving factors?

• Global steel export prices fall to 1.5-year low
  
  
• Currency depreciation, inflation impact prices, dent demand globally
  
  
• Domestic prices fall m-o-m; drag down export prices
  
  
• Subdued trend may continue into mid-term
  
  

Morning Brief: Global seaborne steel prices from major exporting countries like China, India, Vietnam, Russia etc have shown a m-o-m decline in June, 2022, reveals data maintained by SteelMint. In fact, these prices are at about a one-and-a-half year low.

The prices being considered pertain mainly to hot rolled coils (HRCs), rebar and billets.

The drop in HRC has been in the range of $50-180/t, with the steepest fall shown by the CIS.

Why are global export offers downtrending?

• Currency depreciation: A key reason for the fall in export prices lies in the currency depreciation across countries, including India. The depreciation is mainly on account of the dollar gaining in strength. As per some reports, the dollar has appreciated 8-13% in the last one year. Against the backdrop of the appreciating dollar, importers are finding it tough to buy since the landed cost has increased. If an importing country's currency depreciates sharply, imports will become unviable because buyers will have to pay more in dollars for the same volume bought previously. In such circumstances, export prices will have to be readjusted downward to have relevance for importers. Thus, export offers across the world have fallen.
  
  
  
• Global inflation impacting consumption: All major countries across the globe are experiencing unprecedented price rise. The Russia-Ukraine war and subsequent sanctions on the former have led to runaway inflation in crude oil, fuel, food, fertilizer and myriad other items. As per the Organisation for Economic Co-operation & Development (OECD), the estimated inflation rate for the Netherlands has tripled to 9.2% this year, Australia's has doubled to 5.3%. The US' rose 8.6% in May while Britain and Germany have seen rates hitting four-decade highs. Price rise will automatically dampen consumption across-the-board, from food to steel. Governments are resorting to interest rate hikes to tame inflation. However, the United Nations Department of Economic and Social Affairs has said global inflation is projected to rise to 6.7% in 2022.
  
  

Reasons for drop in country-wise offers

• China's subdued post-Covid comeback: In the case of HRCs in particular, export offers corrected downward m-o-m despite the general expectation that these could stay supported in June on the premise that China's economy would have resumed consumption post-lockdown easing. It was anticipated that the construction sector, the largest consumer of steel, would have shown increased activity, catapulting the demand for steel, in the process. However, that has not exactly been the case with realty still remaining sluggish. Supply is higher than demand, which is not allowing mills to increase prices. Some export deals had been reported in early June but these had not been very significant ones. Therefore, China's export offers have remained highly competitive in June, at $760/t against $810/t in mid-May, the lowest amongst the key HRC exporting countries.
  
  
• Russia returned to spoil export party: Russia, a major player in billets & slabs exports, had returned to the market around the second half of April with highly competitive offers. Black Sea FOB billet offers have dropped from $610/t a month ago to current levels of $550/t, around a drop of $60/t. However, chances of prices falling from here are low since the rouble is strong. It crossed the 7-year-high of 54.8 to the dollar in May and is at 56 in June.
  
  
• Export tax dampens Indian offers: In India's case, after the imposition of the 15% export duty, steel mills went into a huddle. They stopped exploring overseas markets in the immediate aftermath of the duty imposition but a week or two later, waded back with boron-added HRCs since these did not fall under the purview of the new tax. Sporadic deals did take place but these were nothing to write home about.
  
  
  
• Domestic prices drop globally
  Meanwhile, domestic steel prices across major steel producing countries have dropped, which also dragged down export prices. Global domestic steel demand has been overall subdued because of inflationary pressures, weather-related issues, China's tepid home demand, and panic buying by EU end-users in March-April, immediately after the Ukraine war erupted, which kept them stocked up.As a result, India's domestic HRC prices fell by a steep $112/t in dollar terms and rebar by $131/t in June m-o-m.
  
  Vietnam's HRCs dropped by a sharp about $100/t and $65/t in rebar m-o-m in the same period.Turkey, which has been fighting inflation for some time, saw a $107/t drop in rebar.In Japan's case, the benchmark Tokyo Steel prices (of both HRCs and rebar) had been rolled over m-o-m. However, because of the currency depreciation, these registered a drop in dollar terms. HRCs fell $44/t and rebar, by $38/t. In fact, the yen has fallen to 20-year lows and is currently plumbing the depths at 135 to the dollar. High energy and food costs have allowed inflation to spiral up too.
  
  

Outlook
With inflation at record highs around the globe, coupled with the inflationary environment, global steel demand will likely remain subdued in the near-to-mid-term.

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