Seaborne billet prices have corrected by almost USD 20-30/MT in last one month but market expects prices to have bottomed out and scope of further correction is limited.
Prime factors justifying this theory are – Expected fall in exports from China, which is eventually the largest exporter in the world, coupled with – Rising graphite electrode prices, which may force some EAF’s with higher cost of production to go out of the market.
What does falling exports from China mean?
The Chinese steel industry, which has been cited as a source of disruption in global steel have registered a consecutive fall in exports. China exported ~5.1 million metric tons of steel products in September, which is 41.5% lower than in September 2016. This data looks encouraging for billet prices to remain firm.
Firstly, September marks the 13th consecutive month in which Chinese steel exports have registered a yearly decline. Also, the percentage decline is the highest we’ve seen over the last 13 months.
In absolute terms, China’s September steel exports are the lowest since February 2014. Another interesting aspect to consider is that in September 2015, Chinese steel exports hit an all-time high of 11.3 million metric tons. Chinese steel exports are currently down to less than half of peak values.
This means importing countries have to either start their own steel melting or have to import steel from other countries like Japan, Korea, Russia and India. But none of these countries have surplus capacities that can cover up China’s loss.
It is expected that exports from China will continue to fall in coming months as production cuts intensifies in key steel producing regions in China.
Rising graphite electrode prices
Graphite electrode is another reason why we feel billet prices may find support. Electrode shortage have been reported since past few months but real impact will be seen in early 2018 when graphite supply contracts are renewed. EAF producers have to pay significantly higher price for graphite electrode in 2018.
Market experts expect contracts to be signed somewhere in the range of USD 9,000-10,000 per tonne against current contract price of USD 2500-3500 per tonne.
There are small EAF manufacturers who buy electrode on spot basis, for which prices are much higher than the contract prices. In this situation, some EAF producers may have to cut production due to high cost of operations.
Trade Wise
1. Chinese domestic billet prices kept on moving up as mills start cutting down production. Prices for 150mm Q235 assessed at Yuan 3,790 (USD 570/MT) including VAT of 17%.
2. Indian billet export prices at USD 470-475/MT FOB India for 150mm 4 SP and USD 490-495/MT FOB for 90mm
3. Indian state owned steel maker, SAIL may conclude 15,000 MT export deal off the tender according to sources.
4. Indian state owned steel maker RINL calls off Nepal tender on lower bids.
5. Indian induction grade billet domestic prices at INR 26,600/MT (USD 409/MT) Ex-Mumbai, excluding GST of 18%
5. Russian steel maker heard to have concluded 5,000 MT billet of size 100mm at around USD 500/MT CFR Philippines
6. Imported billet offers to Egypt heard at USD 505-510/MT CFR from Black Sea and around USD 500/MT from Iran
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