Global HRC export offers hit nearly 8-month high, India shows steepest increase

Global hot rolled coil export offers hit an 8-month high in February, as per SteelMint data. Prices from the four key supplier markets China, Japan, India and Russia - which together enjoy almost 45% of the global seaborne export trade - rose by an average over $40/tonne (t) m-o-m in February 2023. Nearabout levels were last seen in June 2022. However, m-o-m, India showed the steepest increase in February, by almost $70/t to $712/t FoB ($644/t in January).

Russian offers rose the second-highest, by $42/t to $680/t FoB ($638/t).

Japanese and Chinese offers increased by $28/t and $27/t to $660/t ($632/t) and $663/t ($636/t) respectively - on FoB basis.

Factors pulling up global export offers

1. China turns aggressive seller: The world's largest steel producer and guzzler made a post-Covid comeback with offers that were aggressively lower than India's in a bid to capture a large chunk of the market.

The country is using crude steel production cuts as one of the stepping stones to its decarbonisation goal. However, worldsteel data reveals, in January 2023, China's crude steel output was up 2.3% y-o-y to 79.50 million tonnes (mnt). It is also up 2% m-o-m from 77.89 mnt in December 2022. China needs to offload excess inventory and hence the comparatively nominal m-o-m increase. However, the prices were attractive to Southeast Asian buyers, especially Vietnam.

A source in China informed SteelMint that, as per the estimates of the China Metallurgical Industry Planning and Research Institute, output might be 1 billion tonnes in 2023, lower by around 11 mnt from 1,082 mnt in 2022. Demand for 2023, as per the Institute, is pegged at 910 mnt. China's positive demand outlook is also supporting global steel sentiments.

2. Europe returns to restocking: European buyers returned to the market as they found alternatives to Russian gas, had built up inventory and the weather turned friendlier. Natural gas prices reverted to pre-war levels of euro 76/ megawatt-hour, a far cry from the peak of euro 340/ megawatt-hour seen last August.

But steel buying volumes have not met expectations, say many. This is mainly because of the persisting inflation and drop in construction demand, especially from Germany. Also, the falling natural gas prices indicate diminished demand for power amid reports that Europe's economy is slowing.

3. India on strong wicket: Three factors are working in India's favour. Removal of the 15% export duty is encouraging mills to explore fresh deals. Secondly, EU's restocking demand is offering an opportunity to sell and at higher prices which are being accepted in this market. Thirdly, despite Southeast Asia's silence, mills can afford to pick and choose their markets, the EU in this case, since domestic demand is good in Q4 - traditionally the best in terms of demand.

4. Upswing in raw material prices: All key raw material prices have risen m-o-m since December 2022, fuelling the hike in steel prices. In February, iron ore fines prices, CFR China, were ruling at $126/t, up $3/t from January, 2023 and by $32/t since November 2022. China's increased production and strong steel market outlook are driving up iron ore prices.

Premium hard coking coal is touching $383/t CFR India, rising by $56/t m-o-m in February and by $106/t since December, 2022. Again, aggressive Chinese procurement of Australian coking coal is responsible for the price push along with supply issues too.

Scrap (HMS 80:20), CFR Turkey, is up $12/t m-o-m to $424/t and by $41/t since December 2022. Turkey has resumed buying as some mills return to operations, a signal that will support prices in other importing geographies too.

Outlook

Prices are likely to stay supported due to some factors. One, Europe may continue to restock for some more time, albeit in a weakened mode. Two, quake-hit Turkey's reconstruction will warrant imports of billets in large numbers, a scenario that may push up longs prices in the medium to long term. Also, if Turkey limits its own exports of longs and diverts the same for domestic use, then India could fill in the supply gap.