Global steel prices are moving up. Amid the subdued demand growth from construction, infra, mechanical and metal sectors and automobile, the push in prices comes from China. Domestic steel demand in China has enhanced due to mega infrastructure projects announced during 2019-25. As a matter of fact, 19 railway/urban rail lines projects, covering 4,638km, construction of 13 airport projects valued at $14.71 billon, together, generated steel demand of 23.8MT during the period. For funding the splurge in investment, China is issuing special bonds valued at Yuan 3.75 trillion in 2020. During Q1 2020 Chinese GDP went down 6.8%, while Q2 is likely to reverse to growth of 3.2%. This is likely to continue in Q3 and Q4, also culminating in an overall growth in 2020 for the Chinese economy.
In the construction sector, the floor space under construction has risen by 2.3% in H1 and the likely rise in FAI in infra in 2020 is likely to be 10% against 3.8% growth in 2019. However, the FAI growth in infra is supposed to emerge fully in H2 and so is the output growth in automobile, mechanical engineering and metal products. To maintain steel production growth (crude steel production at 411.8 MT in first five months @ 1.9% rise) China has imported 546.9 MT of iron ore (Fe 62%) during the period — a 7.3% rise over last year. China exported 28.7 MT of finished steel in H1, a drop of 16.5% as compared to previous year, while steel imports at 10.39 MT during the period exceeds last year’s level by 60%, making China a big net steel exporter. China has imported low-priced steel during the period.
India’s total steel exports to China in the April-June period reached 2.7 MT, which is substantially more compared to last year. This contained semi-finished steel of 1.7 MT, HRC of 0.97 MT, CR sheets of 0.05 MT as well as 0.286 MT of pig iron and 0.106 MT ferro alloys. During this period, India has imported 0.3MT of steel from China, comprising bars and rods, HRC, CRC and coated sheets and ferro alloys. Thus, in Q1 of the current fiscal year, India is a net steel exporter to China. This is, however, a far cry from the point of view of overall imports and exports between India and China. During 2019, while India has imported total merchandise worth of $85 billion, it has exported total merchandise of $29 billion, resulting in a trade deficit for India at $56billion. Iron and steel comprise only 3-4% of the total trade between the two countries.
A sustained level of iron ore imports by China has led to rise in price of iron ore from $98.4/t CFR China in June beginning to $108.25/t CFR on July 17. The coking coal of premium low-vol HCC grade fob Australia at $ 108/t on June 1 is currently available at $107/t. The domestic demand growth ( PMI for Chinese manufacturing in June at 50.9 compared to 50.6 in May) has contributed to a rise in domestic price of HRC at ex-stock Shanghai from $ 511/t in June start to the current level of $556/t.
The higher realisation has helped Chinese steel producers to ramp up their production and encourage merger and acquisition (example: Jianlong Group from 35MT to 100MT in 5 years). China has recently announced the closure of illegal medium-frequency induction furnace capacities for SS and Alloy steel for environment reasons, which may result in supply constraints. The increase in export offers from China are natural corollary of these events. The export price of HRC for SS-400 grade fob ex-Tianjin port increased from $431/t on June 1 to $457/t on July 17.
The rise in Chinese export prices have also led to rise in domestic price of HRC in India to move up from `35000/t ex-Mumbai (excluding GST) on June 1 to `35750/t on July 17. There is a gradual rise in demand for inventory accumulation. In long product, the export offers from Turkish Re Bar has gone up from $408/t on June 1 to $420/t on July 17. In India, the domestic price of TMT 12mm has moved up by around `500/-/t (all inclusive) during the period.
On the other hand, the domestic prices of HRC in the US, which was one of the highest in the follow up of unilateral import tariff hike by the US under Section 232, has since stabilised and settled at $460/t ex-works Midwest in the middle of July, dropping from $ 501.5/t in June. The domestic HRC prices in North EU (ex-Ruhr) in June beginning has marginally risen from $ 458.8/t to $461/t on July 17. The declining prices in major markets in the US and the EU signal a demand constraint, which can be retrieved by massive doses of FAI. The domestic prices of Japan of HRC FOT at $576 /t on June has gone up to $ 605.8/t on July 17.
Thus, prices are higher in all locations having good demand and are subdued where demand contraction takes place. Higher domestic prices attract imports and subsequently price corrections take place. This phase is undergoing new challenges with protectionist policies against imports being adopted by all countries to protect and nurture domestic industries.