Since past couple of months South Korea one of the largest producers of rebar has been witnessing a sharp slowdown in the construction activities throughout the country. The demand for rebar has lowered significantly as compared to last year and many of participants now believe that demand will reduce further remarkably over the second half of 2018.
Which all factors have put domestic rebar prices in South Korea under pressure?
1. Falling demand from construction sector – Domestic rebar demand in South Korea has suffered a setback amid less construction activities of apartments there locally.
2. Less effective Government policies – South Korean government lowered the banking interest rates to support the construction activities. As a result of which, the demand from small-scale building activities remains supported in the country. However temporary lowering of interest rates from 15% to 10% per annum has been resulting rising the span of paying banking interest to long terms. The period of rebuilding new occupancies thus turned less favorable for builders and real estate holders.
3. Increase in the unemployment rate – Another influencing reason behind weak apartment demand is an increase in the unemployment rate as the result of a poor economic policy of the government and its administration in South Korea. Although large enterprises and companies are in the center of country’s whole capital expenditure, the small and medium scale enterprises established by the common public are not growing effectively in the country. This situation has led to higher unemployment rate which is more than 10% for the age group of 20s and 30s in South Korea.
Production cuts from major Steelmakers to bridge demand-supply gap – Although South Korea produces one of the finest modern made rebars in the world. Leading steelmakers started reducing their production to match up with the gap between supply and demand on the sharp decline in rebar demand. April months’ production figures reduced significantly by around 30,000 MT as it was subjected to the production cuts and the gap is likely to get widened further in May and June months. The distribution unit sales prices quoted to the general contractors’ companies have fallen sharply on excess supply.
Rebar imports and exports likely to alter on weak domestic demand – Hyundai Steel mill exported minor volumes to United States in Apr’18, however, if the future Korean domestic demand will remain weak, it may change the direction of the rebar and billet exports and imports both in the country. This may adjust the balance of domestic supply and demand amid production cuts.
On the fact that, Hyundai steel one of the largest modern-made rebar makers has moved to cut production, the other five companies also forced to move to production cuts. Despite witnessing an increase in rebar production last year which stood 11 MnT in 2017 the rebar production likely to come down by 1.5-2 MnT in 2018 amid production cuts. Thus, the demand for Japanese scrap like H2 and other grades will diminish with similar proportion this year.
Japanese domestic scrap market shows mix trends in last few days – Amid fluctuating Japanese Yen against USD, strong global finish steel prices and increasing demand from Vietnam and Taiwan Japanese domestic scrap prices have pushed up to JPY 34,500-35,000/MT, FAS Tokyo along with four price hikes from Tokyo steel in Japan. Now expectations are of upside movement in the future. However, Japanese H2 price witnessed strong gap upto JPY 4500/MT (USD 40) in Kanto region in the northern part and Western region.
Although Japanese sellers are eyeing for an increase in export prices but South Korean scrap demand is paused at the moment. The strong resistance is being offered as the bids remained around JPY 33,000-33,500/MT, FoB Japan. It should be noted that Hyundai Steel abandoned bids for Japanese scrap last week.
-Input from Iru Miru and SteelDaily
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