Chinese billet prices crashed by over RMB 150/MT, steel future down by over 5% and iron ore prices by 11% in last few trading sessions.
Falling billet prices in Chinese domestic market has given some room for exports. But is it enough for China to make its come back to seaborne market in big way? Can Chinese billet exports reach similar levels of mid 2015 and early 2016? This remains a big question at the moment.
Market participants hold a mix view on this. Some Chinese traders believe that billet exports will resume but not in a big way, others feel that China may come back, as several countries have imposed safe guard measures on Chinese finish steel.
To understand Chinese long steel export scenario, we should look what happened in 2015.
Chinese long steel exports (lncld Billets) doubled during 2013-2015
1. Long steel (incld billets) export more than double from 2013 to 2015 (from 1.8 million tonnes to 4.5 million tonnes) mostly due to billet export increase.
2. Billets were being exported in the name of alloy square bar, for which exporters get a rebate.
3. Later on Chinese government have been strict on description of goods being manipulated, which has cut down the exports to some extent.
4. Billet export prices touched an all time low of USD 235/MT FOB China in 2015-2016.
5. Seaborne scrap prices fell sharply following Chinese billet prices. Lowest prices were recorded at USD 167/MT, CFR Turkey for US origin HMS 80:20.
6. In last 9 months all export volumes gain have been lost due to combination of tight supply/demand balance in China.
7. South and South East Asia were the largest importer of Chinese billet, which contributed over 50%. But it has dropped significantly during 2016-2017. For instance, Indonesia imports fell from 500,000 MT to 150,000 MT per month, Philippines import dropped from 450,000 MT to 100,000 MT and Thailand imports dropped from 450,000 MT to 100,000 MT.
Chinese billets exports will resume but not like 2015
Market participants believe that Chinese billet exports will make way to seaborne market but quantum will not be as high as it was in 2015-2016. Primary reason being capacity cuts and increasing domestic demand in China. It is estimated that Chinese domestic demand is increasing by 2-3%, whereas around 60-70 million tonnes of operational capacity (which were not reported) have been cut on environmental grounds.
“Chinese billet export offers have dropped to around USD 515-520/MT FOB China, but there are no aggressive sellers at the moment. We do not see huge billet volumes being shipped out of China in 2017—2018.” said a large billet trader based in Singapore.
Another Chinese trader stated, “If a manufacturer gets an equal or slightly lower realization in domestic market, he would not want to go for exports. At the moment domestic demand is better than what it was couple of years back. Chinese indirect steel exports have increased, which is in the form of machineries and EPC projects. We expect steel exports from China to be less in 2017-2018”.
Graphite electrode crisis may support billet pfices
Graphite electrode crisis is getting critical as many EAF are reported to be exhausted by electrode inventories by first quarter of 2018. Looking at current situation, it looks that electrode issue will continue till 2018 till new supplies come in the market.
1. EAF contributes around 25% of world’s crude steel production in year 201 5
2. India & China contributes maximum steel production through EAF route
3. Higher graphite electrode prices will increase steel making through EAF by USD 50-60/MT
4. If China starts exporting billet at a lower price, these EAF’s will become unviable and may get closed. This will create imbalance in supply and demand of billets globally.
China has always been a key factor in global steel industry because of its mammoth size. Although people feel, exports of billet may not resume in big way, but one should remember China’s small is also big for several nations.
Source Steel Mint powered by Keyvan Jafari Tehrani (JTC)
