Global View on Billet: China’s aggression impacts all markets, has temporary bottom been reached?

The global billet market has posted another week of price declines, impacted by the significant drop in the Chinese market in both its local and export prices. This has triggered other suppliers also to provide discounts in order to remain competitive. However, after the rebound in futures prices in China on Friday, market sources have started to wonder if the current levels will be the bottom at least for the coming week?

The bearishness in the Asian billet market has only worsened over the past week as the local Chinese billet and rebar markets have been heading towards new lows, while iron ore prices dropped below $100/mt CFR for one day this week. The ex-China 3SP billet reference price lost $5/mt early this week and touched its lowest level of $455-465/mt FOB on Thursday, though it has rebounded to $460-465/mt FOB today. Chinese stockists have been actively trying to sell the old standard of rebar, which will become unsellable after the new standard kicks in on September 25. This has put heavy pressure on prices locally and resulted in aggressive export prices as domestic demand has still been weak. However, on Friday, the mood improved a little after the announcement of RMB 300 billion ($41.5 billion) in ultra-long special government bonds to be issued to expand an existing trade-in and equipment upgrade policy. Also, steel futures prices increased, iron ore rebounded to above $100/mt CFR again, and some more mills announced maintenance works for August. So, market sources now doubt if the decreasing trend in the billet market will continue in the near future. The common expectation is that the market may be stable for some time before the supply situation becomes clearer in both the billet and rebar markets.

The ex-ASEAN billet reference price has settled at $465-475/mt FOB, versus $472-480/mt FOB last week. After a deal for 40,000 mt of ex-Vietnam billet was done at $472-475/mt FOB and an Indonesian sale for a relatively small volume was done at $475/mt FOB last week, trading has been slow. One contract was heard in the middle of the week from Indonesia at $465/mt FOB, as expected for the Asian market. A Malaysian mill sold a lot of billet last week at around $480/mt FOB, while this week another producer was in the market to sell 45,000 mt of billet.

The SteelOrbis reference price for 3SP and 5SP billet in Southeast Asia has settled at $470-485/mt CFR, down by $15/mt on average from $490-495/mt CFR last week. General offers, including those for short positions from traders in Southeast Asia, have declined to the Philippines to $485-490/mt CFR for 5SP. One deal done at $490-495/mt CFR last week has been in re-negotiation this week at $485/mt CFR. But for other countries in Southeast Asia, prices have declined even more significantly. In Indonesia and Thailand, offers for 3SP billet have been at $470/mt CFR and at $480/mt CFR for 5SP billet. While last week up to 20,000 mt of ex-China 3SP were sold at $485/mt CFR to Indonesia. The tradable level in Taiwan has also been heard at $470-475/mt CFR for 3SP, while Chinese 4SP billet was sold at $482/mt CFR early this week.

Turkish mills have been interested in large-scale import billet bookings throughout most of July, with at least 150,000 mt sold at $509-510/mt CFR and at up to $517/mt CFR for mixed grades, while the latest deal this week has been closed for 50,000 mt at $507/mt CFR Izmir region. By the end of the week, offers from China have settled at $500-510/mt CFR for Turkey and levels a few dollars lower are considered possible. The latest sale from Indonesia was done last week at $515/mt CFR for 50,000 mt, while the most recent offers have been at $510-512/mt CFR, according to traders. Also last week, an ex-Malaysia cargo was sold at $520/mt CFR, which is now considered high and not to reflect the market situation. The official offers are at $518-520/mt CFR, but some sources report that part of a cargo of 45,000 mt has already been traded at $512-515/mt CFR. Turkey is expected to continue showing interest in Asian billet, though it will most probably increase the pressure on prices since at least 300,000 mt was booked recently from Asia. The main reason for this interest is that import billet offered at $500-520/mt CFR with discounts of a few dollars possible here and there are at least $30-40/mt cheaper than Turkey’s own captive billet production costs. However, Turkey’s interest in import billet, except for Malaysian origin, may be limited by import licenses and the scarcity of long steel exports overall. While most large Turkish mills have been focused on imports from Asia, smaller buyers have not had much choice but to buy billet from the local market and the Black Sea. In the domestic market, Kardemir announced the same $540-555/mt ex-works levels for billet depending on the steel grade, and managed to sell around 20,000 mt.

As for Black Sea origins, particularly Russia and Donbass, a few small deals have been done at $500-505/mt CFR, which is a maximum of $480/mt FOB. Prior to that, two 5,000 mt cargoes had been sold at $505/mt CFR in addition to ex-Donbass and ex-Belarus lots at $508/mt and $513/mt CFR, respectively. Overall, billet availability from these origins has been quite limited lately and most traders have been focusing on the small buyers. Sources believe that only Metalloinvest can compete with the low Chinese offers in the Turkish market at the moment, but no firm offers are to be seen just yet. The SteelOrbis reference price for ex-Russia billet is now at $475-490/mt FOB, down $7.5/mt over the past week.

The ex-India billet reference price stands at $460-470/mt FOB this week, with the upper end slipping by $10/mt over the past week, but most bids have been at the lower end of the range or even below. A government-run mill which held a tender for 30,000 mt of 150 mm billet early this week is reported to have received a highest bid of $458/mt FOB, against expectations of $465/mt FOB at the lowest, depressing overall sentiments. However, Indian sellers including large private mills have continued to offer overseas against the backdrop of inventory pressures and low domestic sales. An Odisha-based mill has reported a deal for 20,000 mt of billet with a Singapore-based trader for onward sales, at $460/mt FOB, but market sources said that this price could be lower at around $455/mt FOB.

Iranian billet exports have remained almost at a standstill since most of the regular suppliers do not themselves in a position to sell abroad while facing major issues with electricity supply domestically. Due to the limited energy supply to the industrial sector, a lot of capacities and production has been temporarily idled, while the situation is expected to be normalized by mid-September if not later. According to sources, there has been only one tender floated this week, by Khouzestan Steel Company for 30,000 mt of billet, due on July 30. The previous indicative price for ex-Iran billet was set at $475/mt FOB, but the aggressive Chinese price policy may lead to a lower workable price for Iranian origin as well.

*- level seen for a major part of the week, on Friday reference inched up to $460-465/mt FOB