Asian steel trade not out of the woods amid signs China’s appetite is easing

Asian steel trade not out of the woods amid signs China’s appetite is easing

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Asian steel market participants have seen another week pass without signs of light at the end of the tunnel in containing the coronavirus pandemic as countries across the region extend lockdown measures, with the exception of Vietnam.

China, which has provided some relief to the supply glut by importing steel recently, has started to show signs of its appetite easing as domestic prices soften.

Singapore, Indonesia, the Philippines and Malaysia – the first three key buyers of billet and rebar – have the highest number of COVID-19 infections in Southeast Asia and last week announced extensions to lockdowns.

This will mean even longer periods of standstill at construction sites including in Singapore, which has seen around 1,000 cases erupt daily at migrant worker dormitories, leading to the extension of its “circuit breaker” measures to June 1, the furthest date among Asian countries so far, in measures that would last 56 days.

In the Philippines, a second extension of measures has been implemented in Metro Manila and other parts of Luzon island, leading to a lockdown of 61 days.

Traders of billet and rebar said that they were now more focused on ensuring the execution of trades concluded earlier and processing requests to postpone shipments to May and June than rushing into new deals at a time when contractual performance may become questionable.

Last week also saw the start of Ramadan, a seasonal month-long lull period in construction. Despite the extension of a partial lockdown in Jakarta until May 22 for a total of 43 days, scores of workers in the Indonesian capital – where the majority of the country’s COVID-19 cases have been reported – are expected to travel to homes outside the city.

“It’s difficult to say what the implications [of the extension] are right now, but as we see it, construction projects and steel production are still allowed to continue,” an Indonesian mill source said. “So I believe mill operations won’t change drastically from the current [state] and will continue at low levels.”

VIETNAM SEES RESPITE, BUT NOT FORMOSA

Vietnam, held up as a success in virus containment, has not extended its 22-day isolation period beyond April 22, but hot rolled coil demand from its re-rollers has not recovered, mainly due to weak overseas demand for cold rolled coil and coated steel.

The country’s re-rollers have however been put in a stronger bargaining position for raw materials due to the deluge of HRC offers from India, Russia, Japan and South Korea, pressuring spot prices below $400/mt CFR Ho Chi Minh City.

As a result of the difficulty in getting customers to agree to its monthly list price amid a $34/mt or 8% drop in HRC spot prices over the past month, Vietnam’s top producer Formosa Ha Tinh Steel has abandoned its pricing mechanism of announcing monthly list prices in favor of bilateral negotiations, which were understood to have begun at $410-$415/mt for June shipment cargoes, down from $470/mt the previous month.

CHINA LOSING STEAM?

China’s domestic steel prices have started to soften in what may spell the start of a turn in the country’s ability to absorb the region’s steel glut through its recent spate of imports.

Spot prices of rebar in Beijing have fallen Yuan 60/mt or 1.7% over the past week to Yuan 3,540/mt ($500.10/mt) ex-stock Friday, while HRC prices in Shanghai fell Yuan 45/mt or 1.4% over the same period to Yuan 3,285/mt ex-stock, S&P Global Platts assessments showed.

Market participants said that while steel inventory levels have shrunk on a week-on-week basis, they remained high compared with the same time last year.

Spot transactions observed by Platts for billet sold into China have not been sustained through April, in part as traders have part of their financing locked up in the close to 1 million mt of billet sold to China in the first quarter.

The number of billet deals observed on a CFR China basis as of April 24 had fallen to six for a total volume of 150,000 mt, compared with 21 for a total volume of 760,000 mt in Q1, spot market data compiled by Platts showed.

China’s domestic steel demand will likely be supported in the medium term by sustained measures by the government to support the economy, but it remains to be seen if any boost to domestic demand can overcome the shortfall of orders for Chinese products from overseas markets as most of the rest of Asia continues to tackle the pandemic.

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