Rystad Energy’s steel and OCTG note from two of their analysts, Marina Bozkurt and Alistair Ramsay.
Export prices for Chinese API plates narrowed downward by around 4% in May compared to April following the collapsed confidence in China due to dismal economic data for 2022. The Chinese currency has been depreciating, exacerbating the decline in Chinese prices in export markets. The country’s logistics network has been under huge pressure from COVID-19 lockdown measures, depressing overseas demand. Shanghai’s lockdown has slowed down China's shipbuilding hubs, lowering domestic demand for plates and leading to less support for API plate pricing. API plate prices are expected to decline more in the coming weeks but will likely stay at relatively high levels. Foreign demand is expected to recover in the second half 2022 when the lockdowns are lifted. Moreover, raw material prices have surged in recent months and will likely stay elevated as the war in Ukraine tightens further supply. However, offers of API plates from Japan have remained strong reflecting rising supply chain cost and amid strong orders. API plate prices in Europe have stopped growing, and the price correction has been seen over the past month. The price level has been pulled down by lower commodity plate prices on the back of muted buying activity and declining slab costs. The price for EU-origin API plates fell by 2.1 - 3.8% month-on-month for sour grade and by around 4 - 5% for non-sour grade. However, the API plate mills’ presence in the spot market remained limited. There is limited room for API plate prices to decline based on current input costs, and in Europe are expected to likely stabilise on a high level considering current tight availability, though moderate downward correction in the coming months is possible.
Steel prices revived over the past week for the first time in more than a month. Modest gains in the daily average were recorded in and out of Europe, where spot prices rose to US$1158/t ex-works for hot-rolled coil (HRC) and back over US$800/t (US$803) for reinforcing bar, fob Turkish ports.? Further corrections were recorded in the US, however, where spot prices had regained above-average premiums over European prices in recent weeks. Indeed, from just an US$11/t differential (premium) over EU HRC base prices in the week ending 15 April, US spot prices soared to a US$225/t premium in the week ending 20 May, incentivising a surge in US imports still at US$187/t as of 1 June, the premium should continue to encourage an exodus to the US. More surprisingly, spot prices in comparatively low-priced China also fell over the past week, but the end to lockdown this week should trigger a change in sentiment and with it, steel price direction.
During the final week of May, global steel production estimates were published for April and contrary to the pattern in China, where output continued to recover last month, output in the rest of the world largely declined. The day rate among most steel-producing countries outside of China slipped to 2.33 million tpd, down from 2.34 in March. Driving the decline were producers in India, Japan and Brazil whose output fell between 6 - 10% month on month. Compared to the first four months of last year, steel production has fallen more than 7% this year, driven by 9 - 10% erosions in Iran and China respectively. Among the top ten producing countries, only India has recorded growth. At this stage, it seems unlikely that the world will breach the 2 billion/t and instead retreat, for the first time since 2015.
Read the article online at: https://www.worldpipelines.com/business-news/08062022/steel-production-set-to-retreat-to-lowest-levels-since-2015/