Chinese imports could slow as regional demand recovers
India's HRC exports to continue, benefiting rerollers
Billet demand sees fragile recovery in Southeast Asia
China's steel imports appear set to proceed in intermittent phases in the third quarter as the world enters a new normal in which returning waves of the coronavirus pose a constant threat to the nascent recovery in global steel demand.
Beijing's measures to buoy its economy will likely continue to support domestic steel demand and sustain its appetite for imports in Q3.
But even as this has cushioned regional steel markets from a hard landing, the uptrend in Chinese domestic demand and prices has not been spared from a brief punctuation when infections reemerged in the capital Beijing, recovering only after the virus was again bought under control.
As the rest of Asia gradually relaxes lockdown measures, unannounced comebacks by the virus like the one Beijing experienced will likely hang over the respite that steel markets are currently seeing, in which buyers who deferred shipments earlier have resumed taking delivery of cargoes.
Already, infection numbers are creeping back up in cities like Manila, Hong Kong, Tokyo and Melbourne and, in many cases, have led to a return to tighter controls.
The unpredictability of the when and where the virus reappears is a key factor that will decide whether the window for Chinese imports opens or not: China's infrastructure build-out will support domestic demand and make importing sensible as long as domestic cases don't make a comeback, but this trade flow could pause if regional demand picks up from other countries successfully staunching the spread of the virus.
When China restarted its economy in March after getting past the worst of the pandemic, hot rolled coil prices trailed behind those of rebar from mid-March through early July, as demand for the latter benefited more directly from infrastructure investments.
By early July, weak market sentiment had led some Chinese mills to consider resuming HRC exports.
But these thoughts were erased after the recent surge in domestic prices propelled HRC back above rebar.
A major state-owned mill in northeastern China was heard to have stopped taking orders for exports for September shipment in favor of supplying to the domestic market.
HRC's rebound was in part due to maintenance conducted at mills in May, which curtailed supply, and also because rebar demand was dampened by the longest rainy season ever recorded in eastern China and severe flooding.
INDIA'S HRC EXPORTS HINGE ON DOMESTIC REBOUND
If Chinese demand continues, interest in imports could be sustained in Q3.
In Q2, Indian steelmakers were a contributor to satisfying China's appetite for imported HRC as local demand was stymied by lockdown measures that have been billed as some of the world's most stringent.
Over April-June, Indian HRC deals for export to destinations in other parts of Asia surged to 1.1 million mt from 31,000 mt in Q1 and 170,000 mt a year earlier, spot market data compiled by S&P Global Platts showed.
The figure, culminated from 48 deals, was more than the total volume observed over the previous four quarters.
While lockdown measures have been eased in many parts of India in July, Maharashtra, the worst-hit state and an important industrial center, has seen its lockdown extended to July 31.
Indian mills will continue to be reliant on exports in Q3 as steel end-users that have resumed operations run through HRC inventories accumulated over earlier months, and migrant workers take time to return to cities.
VIETNAM REROLLERS SPOILED FOR CHOICE
Of the 48 HRC deals of Indian origin Platts tracked in Q2, China received 14 cargoes, while a greater 31 were headed to Vietnam.
Despite the apparent competition posed by China's importing of HRC, Vietnamese rerollers were spoilt for choice, thanks to ample supply from India and Russia, on top of what Formosa Ha Tinh Steel itself produces in central Vietnam.
Cracks emerged at the start of the year in Formosa's pricing mechanism, which saw it announcing a monthly offer that end-users bought on the basis of, with rebates given the following month if spot market prices were lower than the offer.
Formosa's offers, which had been widely followed by producers across the region as price guidance, broke down in April when difficulties in coming to agreement with end-users made it drop monthly announcements for one-on-one negotiations.
With Indian offers still being actively made into Vietnam in the first half of July, bilateral negotiations look set to continue being the modus operandi of price setting in Vietnam.
BILLET SEES FRAGILE RECOVERY
With billet, a similar situation has unfolded, although Vietnam has joined the ranks of India in supplying to China.
Platts observed 43 deals for billet amounting to 1.29 million mt done on a CFR China basis in Q2, exceeding the 22 deals for 760,000 mt seen the previous quarter.
As alternative demand from the Philippines, Thailand and Indonesia has recovered to 50%-60% of pre-COVID-19 levels, sellers in India and
Vietnam have raised offers to China amid several billet casters in Xuzhou in east China having shut since June 30 for capacity replacements.
Some market participants said the pace of China's billet imports could slow in Q3 if the spread between overseas and domestic prices narrows due to a recovery in overseas demand.
But the fragility of this recovery has already been seen, with a recent surge in infections in the Philippines prompting at least one rebar producer there to pause billet purchases.
Keith Tan
