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Analysis: East Asia imports more billet amid abundant supply, rising feedstock costs

Analysis: East Asia imports more billet amid abundant supply, rising feedstock costs

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Published on date 07th August 2019.

Singapore — East Asian steelmakers have seen imports of steel billet continue to grow in a trend that started in the fourth quarter of 2018, driven mainly by the diversion of supply from other regions and higher costs of ferrous scrap and iron ore, market participants said.

Thailand, Indonesia and South Korea saw import volumes in the first half of this year post double-digit year-on-year growth in percentage terms, as cheaper billet became available, making some companies decide to switch off their electronic arc furnaces, or EAFs, during periods when it was less economical to melt scrap. Thailand imported 2.03 million mt of semi-finish steel in the first half of the year, a staggering 33% increase over the same period last year,

Thai customs data showed. Indonesia meanwhile, saw semi-finished imports rise 19% to 2.02 million mt in the first six months of this year, while South Korea`s imports over the same period stood at 1.2 million mt, up 24% year on year, customs data showed. Cheaper billet was made available especially from Russia, which diverted cargoes to Asia on weaker demand from Turkey. In the first half of this year, imports of Russian semi-finished steel by Thailand jumped 392% to 544,057 mt. Russian exports to South Korea and Taiwan jumped 200% and 122% to 76,616 mt and 717,086 mt, respectively. Billet CFR Southeast Asia weekly TURKISH TURMOIL The Turkish steel industry`s fortunes took a downturn in the first half of 2018 after its exports to the US were slapped with higher tariffs amid diplomatic tensions.

While Turkey had been a consistent buyer of steel billet from Russia and Kazakhstan last year, the slump in Turkish domestic rebar prices and an economic crisis in the country stymied its imports of billet, which were then diverted to Asia. Turkish imports of semi-finished steel over January to May this year more than halved to 1.12 million mt, from the previous year`s 2.69 million mt, as total finished steel output slumped 21% to 13.8 million mt over the same period, according to Turkish Statistical Institute`s data. On the flip side, the lull in domestic demand in Turkey also caused Turkish mills to look to other sales avenues for its semi-finished steel, which included East Asia. Taiwan reported that it import 51,555 mt of Turkish origin semi-finished steel during the first five months of the year, up from nothing last year, Taiwanese customs data showed.

EAST ASIA BILLET EXPORTS GROWING WITHIN TOO Regionally, Japan too has started to pick up billet exports in the second quarter of this year, as domestic demand related to construction for the 2020 Tokyo Olympics eased. Japanese semi-finished steel exports in the second quarter of the year, were up 66% from the first-quarter at 856,014 mt, according to its finance ministry. Japanese offers in July were at levels close to Russian offers at $460-$465/mt CFR Manila, buyers in the Philippines said.

Billets from Southeast Asian countries like Malaysia have also penetrated the export market this year, due to the firing of and restarting of blast furnaces from the likes of Alliance Steel and Eastern Steel in 2018. Countries like Taiwan, South Korea, and Thailand had reported an increase in import of Malaysian-origin semi-finished steel so far this year, as compared to none reported in 2018. Even Vietnam reported higher imports of Malaysian billets in 2018, which triggered the Vietnamese Ministry of Industry and Trade in June this year to slap a 17% safeguard duty against them, Platts reported previously.

Adding on to the regional surplus is also the growing production capacity in Vietnam. "This too is pushing more billet production into the region," market sources said. With the increase in output of construction steel from new capacities at Formosa and Hoa Phat since last year, as well as the upcoming firing of Nghi Son mill targeted for the third quarter this year, billet production in the country has increased. "Smaller mills (EAFs), which are not able to compete with rebar prices from blast furnaces, will have to find alternative sales [outlets].

Like exporting their billets to Thailand or the Philippines," a steel mill in Vietnam said. Thailand has reported an increase in import of semi-finished steel from Vietnam to 78,961 mt during the first six months of this year, up from only 1,931 mt during the same period last year. CHINA TURNS BUYER Known to have raised the hackles of its neighbors following the export of large volumes of semi-finished steel a few years ago, China has now turned into an importer of billet as domestic prices climbed after output cuts were implemented, causing prices of iron ore and scrap to rise.

Deals for some 200,000 mt of Qatari and Turkish billet bound for China were reported concluded since June 23, when the government of Tangshan implemented more stringent production cuts. However, market participants were skeptical that China`s billet buying spree would continue into the longer term, as current high domestic billet prices were mainly supported by high iron ore prices, which may not be sustainable as supplies increase ahead of the seasonal lull in demand.

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