Trade review: India’s HRC must stay competitive, China plans to import recycled steel

Strong points

The trend of the Asian CRH market reverses in the first quarter

Rebar prices in Asia would like to strengthen in the first quarter

Demand for shipping scrap will improve

This report is part of the S&P Global Platts Metals Trade Review series, in which we explore datasets and analyze some of the key trends in iron ore, alumina, steel and metallurgical scrap and coal . We also explore what the next few months could bring, from shifts in supply and demand, to new arbitrages and shifts in quality spreads.

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The seasonal increase in demand in the spring, following the Chinese New Year holiday, points to a positive outlook for the Asian hot-rolled coil, rebar and scrap markets, which have been characterized by subdued trading and lethargic from October to December 2021.

Indian HRC to stay competitive in Q1

The Asian hot rolled coil market trend is expected to change in the first quarter of 2022 as the sentiment among Chinese market participants is expected to turn positive following the Lunar New Year celebrations with improved demand and steel production restrictions.

Both China and India actively participated in the HRC spot market during the last quarter of 2021, as evidenced by offers and offers for SAE1006 coils compiled by S&P Global Platts during the market assessment process at closing, although Indian offers were more competitive from December. From. This contrasts with the two previous years, when the supply from only one of these two origins dominated the market.

In the fourth quarter of 2021, South East Asia reroll grade HRC prices fell 13.4% from $868/mt CFR Vietnam on October 1 to $751/mt on December 31, the decline from of November being attributed to the weakness of the Chinese domestic market. This should reverse in the first quarter of 2022.

Market participants see factors such as environment-related production restrictions, looser monetary policy aimed at stabilizing the economy, and rising demand in the spring, particularly the recovery in the real estate sector, to help supporting Chinese domestic prices in the first quarter.

In India, coil offers are expected to become competitive from April to May 2022, at the start of a new fiscal year, a traditionally off-peak season. Prices in India’s domestic markets fell significantly in the fourth quarter, although factories are of the view that the first quarter of 2022 may not see the same fate as government-led infrastructure projects are accelerated ahead of the close of the financial year in March and the Union Budget in February.

Nonetheless, bullish factors may remain fluid given the uncertainty surrounding the global spread of COVID-19, which is likely to dampen industrial activity in several importing countries and hurt interest from major exporters, notably Japan. , South Korea, China and India.

Bid-ask spread for recycled steel imports narrows

Chinese demand for recycled steel transported by sea was subdued in the fourth quarter of 2021, as lower domestic prices weighed heavily on buying indications from steel mills. One-time exchanges of recycled steel to China were low, with Platts observing 19 offers, offers, exchanges and indications in December, compared to a peak of 134 in March 2021.

The bid-ask spread, however, narrowed to $15-$30/mt from the previous high of $100/mt in July as Japanese HS grade prices fell on weak domestic demand. At the same time, the higher grade HS over H2 grade also returned to its usual range of 2,000-3,000 yen/ton ($17.50-26.20/ton) in December 2021, after the peak August 14,500 yen/ton.

The narrowing bid-ask spread has revived Chinese steel mills’ interest in imports, which may continue into the first quarter of 2022 and translate into more imports. Nevertheless, Chinese buyers were cautiously on the lookout for signs that could determine the direction of the market after the Lunar New Year celebrations and the Beijing Winter Olympics.

In Japan, prices in the domestic market continued to rise above those in the export market, with domestic mills paying a premium of up to 7,000 yen/ton over overseas buyers in December. Meanwhile, scrap demand and buying indications in East and Southeast Asia were suppressed following the fall in Asian billet prices in mid-October.

The gap between buyers and sellers has dampened export activity such that Kanto Tetsugen’s monthly export tender failed to award shipments in November and December, a rare outcome that last performed in 2008.

Market expectations for marine scrap demand were mixed for the start of 2022, with some improvement expected after the Lunar New Year, when construction demand typically returns to China and Vietnam. But if billet prices stay low, leaving mill smelting margins in negative territory, scrap prices are likely to fall.

China rebar price expected to strengthen in Q1

Given weak rebar demand from China during the seasonally weak fourth quarter, spot rebar and billet prices fell significantly. Platts had rated Beijing rebar down 21%, Jiangsu rebar down 19% and Tangshan billets down 18% in the fourth quarter of 2021.

The sharp decline in China’s physical and futures markets affected shipping prices and sentiment. Import billet sales to China declined significantly in the fourth quarter due to concerns over uncertain market trends.

However, steel supply would likely be constrained this quarter due to concerns over environmental protection and low-carbon constraints ahead of the Beijing Winter Olympics. China’s National Development and Reform Commission said the country will actively promote and accelerate major regional strategies, new-type urbanization, public services and infrastructure construction, which will continue to boost investment demand. . Steel demand growth is expected to gradually resume in the first quarter, which could lead to a temporary imbalance in supply and demand fundamentals.

Singapore’s rebar demand is likely to pick up gradually in the first quarter as some projects that had been delayed since 2021 resume. Domestic structural steel demand in South Korea, India and Vietnam is also showing signs. recovery.

If market fundamentals remain stable, some market participants expect the recovery in regional demand to continue in the first quarter. And if the supply of rebar and billets tightens in shipping markets, China will start importing billets again in the next quarter.

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