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Kallanish Kallanish

Knowledge matters Knowledge matters

July, 18th 2018

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Weekly Steel

Issue29-18 17 Jul 2018

Kallanish Steel Weekly: Trade war bites into Chinese steel demand

On  11 July, the US announced plans to impose 10% duties on another $200 billion of Chinese goods. These could impact some 3 million tonnes/year of demand for Chinese steel, far more than the section 232 tariffs. The more important impact may still lie in China’s response, which could boost steel demand by a larger amount.

One key factor for iron and steel is that the new duties would fill in the gaps left over from the section 232 tariffs. The earlier 25% duties on steel imports actually missed out some products which are normally included in steel trade data, such as some kinds of pipe and pipe fittings. Of these products, China exported 387,274t to the US in 2017, up 16.88% year-on-year. Exports to the US accounted for 17.68% of China’s total exports of these products.

In addition to filling in the gaps in steel products, the proposed duties target a large number of manufactured steel-containing goods, These include such items as doors, windows, tanks and sinks that could also impact steel demand in China. In 2017, China exported some 2.83mt of these goods to the US, up 6.45% y-o-y. This accounted for almost 20% of China’s total exports of the same goods. As these goods are primarily made of steel, the tariffs could have an equivalent impact on Chinese finished steel demand from manufacturing.

Finally, the duties also target imports of pig iron, ferroalloys, DRI and scrap from China. These in total amounted only to 37,745t in 2017, although up 57.2% y-o-y.

 

Issue28-18 10 Jul 2018

Kallanish Steel Weekly: Iron ore/scrap spread remains firm

The differential between iron ore prices in China and scrap levels in Turkey remained steady last week despite the slight reduction of scrap levels since the March peak.

Currently, the spread is some $290/tonne. Scrap is holding at above $350/t cfr Turkey and iron ore continues to fluctuate between $62/t and $65/t cfr Qingdao, as it has done for the last month or so.

At the beginning of July 2017, the differential between the two indexes stood at slightly more than $230/t while back in July 2016 it was close to $160/t. The spike in the level is confirmed by an analysis of how the iron ore price and the scrap index have moved during the last twelve months. Scrap increased its value by almost 20% year-on-year while iron ore only has recovered by only 2-3% y-o-y (see chart).

Earlier this year, when the differential between the two main raw material prices globally surpassed $300/t, scrap corrected swiftly. The current spread has been relatively stable since April this year, an indication perhaps that it has reached a balanced level.

 

Issue27-18 03 Jul 2018

Kallanish Steel Weekly: Billet prices return to quarterly peak

Last week billet prices inched up slightly to $520/tonne fob Black Sea, returning to the peak level registered during April-June. The second quarter was a volatile period overall for billet prices, with ups and downs registered. The recovery seen during the last week of the quarter could give some slight hope however to a very uncertain market going forward.

Traders in the billet sector remain wary due to the many uncertainties surrounding the global market for the product. These include the recent correction in scrap values and the weakness of Chinese finished steel prices despite stable iron ore levels. “We’re kind of stuck a little bit,” a European billet trader says. “China has come off a little which is scary, and there’s lack of clarity over Iran.”

Turkish scrap inched down slightly last week and mills mentioned the possibility of reducing production due to a fall in rebar demand from the international market.

 

Issue26-18 26 Jun 2018

Kallanish Steel Weekly: Raw material prices stabilise as third quarter looms

Last week raw material prices remained fairly stable as the third quarter approached and the market is expected to calm down slightly during the July and August period.

Turkish scrap values remained at $355/tonne cfr last week. The scrap market had recovered slightly around 10 June and then stabilised further. The pick-up in momentum came as the US announced the imposition of import tariffs on European, Mexican and Canadian product. This had the effect of levelling the playing field with key exporting countries to the US such as Turkey and the CIS.

Last year, after a period of stability seen during May and June, the market jumped by over $60/t during July and August. While a similar recovery is not expected this time, some minor increases in the first part of Q3 could be possible as the market seems stronger than during May and the beginning of June. In addition, the latest results in the Turkish elections are expected to have taken away, at least for the moment, the potential uncertainty arising from sudden political change.

In line with the movements of scrap, CIS billet prices remained stable last week but could well recover as Q3 starts.