- Disparity in prices between EU, USA and Asia keeps growing
- EU not lifting steel import quotas despite supply worries
- Record-high energy prices creating inflationary pressure
The Russia-Ukraine war and the economic sanctions imposed on Russia by the European Union (EU) and G7 allies, including the USA, have not just altered trade patterns and demand-supply balance but also created a wide gulf between steel prices in the western world and in Asia.
Disparity in steel prices
The key reason for the wide price differential is that steel demand in Asia is being met by the strong presence of Chinese and Southeast Asian producers, whereas in the west, especially in the EU, supply remains restricted due to reduction in capacity utilisation by mills. The reduction in capacity utilisation rates amid record high oil, natural gas and coal prices as well as the fear of stoppages by some mills are resulting in higher demand from the market than usual, as the downstream industries want to secure material.
Moreover, prices have increased significantly with the lack of import options supporting the upward movement. The EU is not ready to lift its safeguard measures despite strong protests from the downstream industry, as per market sources.
In the USA, considering the fact that the mills are running at full capacity, it is fair to expect that any increase in demand will have to be compensated for by imports. Import restrictions and, therefore, prices from regular suppliers have increased dramatically due to the war in Ukraine. With this, steel prices in the USA are also on an uptrend.
Consequently, there is a price imbalance between Asia and the rest of the world. The difference between Turkish origin reinforcing bar and wire rod prices and Chinese, Vietnamese or Malaysian origin reinforcing bar and wire rod prices is more than $100/tonne (t), as estimated by the International Rebar Producers and Exporters Association (IREPAS).
SteelMint data shows that despite falling from over $1,300/t, HRC (3mm, S275) prices stood at $1,275 CNF Europe on 5 April. In comparison, HRC export prices from China, if considered the benchmark Asian price, stood at $920/t FOB Rizhao Port on 5 April. The wide difference in prices is quite evident.
European steel prices are now the highest in the world and Asian, especially Chinese prices are substantially lower. Therefore, the steel trade is changing direction from selling to Asia to buying from Asia. There is a lot of incentive to increase exports by Asian suppliers. Some Indian mills, for example, are trying to allocate 35-40% of total production for exports.
Notably, despite the record surge in steel prices in India, domestic HRC (2.5mm, IS2062 structural grade) was assessed by SteelMint at INR 78,800/t exy Mumbai ($1,038/t) on 6 April. This means there is a huge gap between export prices to European countries and domestic prices and so exports are offering some relief to mills amid high coking coal prices.
Due to firm global steel prices, Chinese mills have turned active in the export market, especially HRC exports to South East Asia. SteelMint reported that European buyers have booked steel slabs from China at rates much lower than in Europe.
Import quota
The war has led to strict sanctions on Russia by the EU and the quarterly import quotas of Russia and Belarus were redistributed among other countries. This pushed up the export quotas of hot-rolled coil (HRC) for other exporting countries. The HRC quota for Indian mills increased to 273,178 t (+39%) and for cold-rolled coil (CRC) to 86,589 t (+1%) for Q2CY’22.
For the EU, quota redistribution is simply a shift or change in import allocations from one country to another, which doesn’t affect total imports that are curtailed due to safeguard measures.
Russia exported 15.9 mnt of semi-finished steel and 16.8 mnt of finished steel in 2021, trade data show. Around 45% of the steel production from Russia and around 75% from Ukraine are exported to other countries. According to the European Steel Association, or Eurofer, the EU imported 3.2 mnt of finished steel products from Russia in 2020 and an estimated 3.7 mnt in 2021 over and above imports of semi-finished steel. Russia was the second-largest supplier to the EU after Turkey.
Outlook
Going forward, the supply scenario is expected to ease in Europe with key mills restarting production. Ukraine’s ArcelorMittal Kryvyi Rih (AMKR), which is located in the centre of the country, is working on a gradual restart of its steel and pig iron making operations that had been suspended on 4 March. The mill produced 4.92 mnt of crude steel in 2021 and 4.6 mnt of finished steel, mainly rebar, wire rods and structurals.
Similarly, Ukrainian mining and steelmaking company Metinvest is partly resuming operations at the Zaporizhstal iron and steel works. As per reports, the mill will restart one of its two furnaces. In April, the mill targets at least 20,000-30,000 t crude steel output aiming to ramp up production to 150,000 t in May. In 2021, Zaporizhstal produced 3.9 mnt of crude steel which was converted into 3.3 mnt of rolled products.
Also, it seems that steel prices have already peaked. However, fuel prices have increased sharply since the war started and the extremely uncertain energy market outlook is a matter of great concern. Russian President Vladimir Putin has threatened to cut gas supplies to “unfriendly” countries if they don’t start paying for gas imports in Russian roubles.
On the other hand, Asian buyers of Russian oil are expecting to conclude trade settlements in Russian roubles due to attractive discounts.
In 2021, the European Union imported 155 billion cubic metres of natural gas from Russia, accounting for around 45% of the EU’s gas imports and close to 40% of its total gas consumption, according to the International Energy Agency (IEA). Russia was also Europe’s largest supplier of oil at 27% of total imports in 2021.
Fuel prices have hit decadal highs in Europe after the war started and overall inflationary pressure is expected to keep steel prices firm until the supply scenario changes significantly.
Leave a Reply