Steel production cuts are intensifying in major countries because global steel demand remains sluggish amidst weakning market conditions.
Vietnam
A major steel producer in Vietnam, Formosa Ha Tinh (FHS), has decided to cut its production because the current market sentiment has deteriorated so much that the company was forced to reduce production for the first time since its inception. The steel major commissioned its second blast furnace in 2018 and has an annual capacity of 7 million tonnes (mnt). FHS has vast land parcels for future expansion and has ample storage space for semi-finished products as well as slabs.
Recently, FHS has reduced its monthly hot-rolled coil (HRC) offers sharply for September 2022. Post-revision, the effective price of skin-pass HRC (SAE1006) stands at $655/t CIF Ho Chi Minh City. These prices are lower by around $100/t as against prices announced in mid June. However, the company had announced significant reductions in HRC prices twice in August, bringing offers down to $720/t CIF Ho Chi Minh City (HCMC).
Notably, it is the first time since December 2008 that the price has fallen below $700/t levels.
Imported hot-rolled coils (HRC) offers from India and China are being heard in the mid-range of $600/t.
Hoa Phat: Hoa Phat, which manufactures general purpose hot-with-thin slab continous casting machines is also in a difficult situation. The company does not manufacture high-quality re-roll coils, and thus its selling price is usually lower than FHS. Therefore, it is likely that Hoa Phat will reduce its HRC prices below $600/t. Moreover, the company’s June sales dropped 14% y-o-y to 560,000 t.
Hoa Phat has decided to entrust the improvement to Mitsubishi Heavy Industries’ Primetals Technologies in order to expand the steel grades that can be made with the thin slab continuous casting “QSP” introduced by Danieli, Italy. However, it will not be an immediate measure; thus, for Hoa Phat too production cuts will become unavoidable.
In addition to the above, in Vietnam, rising interest rates have slowed domestic demand from real estate, and the burden on steelmakers has increased in terms of funding, thereby leading to further reduction in output.
China
China’s zero-COVID policy, the seasonal lull during summer and heavily rainfall in different parts of the country and rising interest rates have resulted buying interest drying up even at a time when steel prices have fallen globally. Thus, steel production is likely to remain under pressure until the arrival of autumn demand.
China’s steel production has been increasing since the Chinese New Year. However, in June, steel production began to decline. For instance, the daily crude steel production of member companies associated with the China Iron and Steel Association (CISA) stood at 2.074 mnt in early July, which is about 25,000 t less from the end of June.
Economic measures have been implemented in China which has resulted in improvement in demand for strip steel, but the manufacturing industry might take some more time to recover. Moreover, concerns regarding re-imposition of lockdowns in Shanghai and elsewhere have increased.
As the government’s policy is that crude steel production will not exceed the levels reached in 2021, it is expected that production will continue to decline after July.
India
In India, domestic steel demand is sluggish during the monsoons which has resulted in slowdown in construction activites. Moreover, the government slapped a 15% export duty on various steel products which resulted in reduced steel capacity utilisation.
Indian steel giant JSW Steel reported crude steel production at 5.72 mnt in Q1FY’23, down 3% as against 5.88 mnt in the last quarter. Output fell due to the preponement of certain scheduled shutdowns due to low demand. On an annual basis, steel output registered a growth of 16% against 4.94 mnt in Q1FY’22.
Tata Steel’s crude steel production remained largely stable q-o-q at 4.92 mnt, while steel sales fell by 21% q-o-q to 4.06 mnt in Q1FY’23. On a yearly basis, production rose 6% from 4.63 mnt in Q1FY’22. Meanwhile, sales dropped marginally by 2% y-o-y due to imposition of 15% export duty.
Steel inventory globally has remained high due to supply chain disruption in the automobile and other manufacturing industries and the impact on real estate due to rate hikes. Even in the USA, where steel prices are usually the highest globally, HRC prices dropped below $1,000/t for the first time in about a year-and-a-half.
In Europe as well, market conditions continued to soften due to the prolonged impact of Russia’s invasion of Ukraine and the entry into vacation. ArcelorMittal has announced a reduction in production.
Note: The article has been published in line with article exchange agreement with Japan Metal Daily
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