Global steel export offers drop m-o-m in June; short term looks sluggish

Even if some of the global benchmark export offers did show an uptick in May, there has been an across-the-board decline in June m-o-m, reveals data collated by SteelMint.

• Hot rolled coil (HRC) offers from the giant, China, which shapes commodity sentiments globally, dip 2% or by $13/tonne in June m-o-m to $554/tonne (t) compared to $567/t in May.
• Offers from Indian mills are down 5% or $31/t to $568/t against $599/t seen last month.
• Russians are offering billets at $517/t FOB Black Sea, a 3% ($16/t) dip compared to $533/t in May.
• Turkiye's benchmark rebar has fallen m-o-m by $6/t to $630/t against $636/t last month.

It is to be noted that all monthly average prices mentioned are on FOB basis.

Factors on which prices slipped m-o-m:

1. Lack of global demand persists: Lack of adequate steel demand persists in leading economies, which is forcing mills to consistently lower their export offers. What the market is lacking is full-bodied demand that can translate into wholesome domestic and/or imported steel consumption. End-user demand is feeling the body blow of inflation and energy prices, both of which have eased since last calendar but are still gnawing on the higher side. For instance, the European Union had experienced inflation unseen since 1985, peaking to 11.5% in October 2022, fuelled by the skyrocketed energy prices. It eased to 8.3% in April.

Electricity inflation in the EU eased to 13.2% in April compared to the record 52.6% in July 2022. In a bid to tame inflation, the European Commercial Bank raised rates 7 times although real interest rates remain negative and thus the EU will probably take in another rate hike.

However, experts feel inflation will remain on the higher side, at around 6.7%, in the EU for 2023. Coupled with this prognostication, lack of fresh infrastructure development (which has the highest contribution to steel consumption) and reduced public spending are factors that will keep EU demand subdued in the foreseeable future.

2. China dangles price advantage carrot: With home demand not picking up along expected lines, coupled with muted global signals, Chinese mills have had no option but to lower their export offers in a bid to capture the market as they struggled with squeezed margins. Thus, the bargain-hunting MENA region, apart from Vietnam, has been open to these rock-bottom prices. The rainy season, spanning across April-July, has aggravated the lack of domestic demand.

Labouring under current unfavourable business conditions, many mills reduced their prices for July sales. For instance, Taiwan's China Steel Corporation slashed July delivery prices of flat products by $32-49/t.

China's Baosteel rolled over its HRC prices for July sales after reducing these by $28/t in June.

Curbs are being implemented, which have slowed down production and this may create some domestic traction. Much is now depending on the new government stimulus measures expected to be rolled out soon.

3. Japan sees drop in manufacturing activity: Japanese HRC prices dropped $13/t m-o-m in June amid reduced global demand. On cue, Tokyo Steel, Japan's top electric arc furnace steelmaker, in mid-June, cut its steel prices m-o-m for July 2023 sales.

Japan's crude steel production fell 5.2% in May to 7.6 mnt amid lack of home and away demand. The au Jibun Bank Japan Manufacturing PMI declined to 49.8 in June 2023 from a final 50.6 in May, which was the highest reading in seven months. It was the fifth contraction in factory activity so far this year, as both output and new orders shrank, with new export orders falling at the steepest pace since February.

4. Indians fail to match reduced Chinese offers: India's steel exports fell by 4% m-o-m in May 2023 to 0.90 mnt. Mills were unable to compete with the rock-bottom Chinese offers and thus stayed on the sidelines. Other importing regions, like South Asia and of course the EU, showed little appetite. That apart, domestic demand has also been subdued which has not allowed an elbow room to raise export offers either. In fact, mills and traders lowered their prices for June.

5. Lower raw material prices fail to support finished items: Raw material prices have been unsupportive too. Prices of the benchmark iron ore fines (Fe62%) imported by China have been eroding on the back of a growing lack of demand from the giant. From $127/t CFR China in March 2023, these fell to $105/t in May and remained almost stable m-o-m in June at $112/t. The premium HCC coking coal imported from Australia has also remained range-bound m-o-m in June at $244/t CFR India.

6. Turkish mills in a 'long' struggle: Turkish rebar exports are down 60% y-o-y but what is worrying is that these were already down 30% y-o-y last year. Local demand is expected to increase to feed reconstruction demand required after the February 2023 earthquake and also for the renewal of old buildings in some other parts of the country. However, domestic demand will not be sufficient to keep the Turkish mills in a comfortable position, further disadvantaged by the recent uptrend in scrap prices.

In fact, mills are facing a double whammy. The lira has appreciated around 31% since the presidential elections concluded in end-May. The eroded currency has raised imported scrap prices, inflating mills' cost of production. But demand is not conducive enough for raising prices.

Outlook

The current quarter will be a dampened one for both India and China, thanks to the rains.

With subdued demand signals emerging from across the globe, raw material prices may remain on lower side as well, although scrap may show a divergent trend.

The current scenario will likely sustain in the short term.