Global View on Billet: Middle East war affects freights and prices, disrupts supply from Iran

The global billet market has been affected by the outbreak of war in the Middle East in late February with the main consequences seen in rising freight rates, prices and possible delays in already booked cargoes from Asia to the MENA region, together with disruptions of shipments expected from Iran to Southteast Asia, triggering demand for alternative sources. Some optimism in terms of prices and demand has been seen in the Chinese market as well, but without any dramatic change.

Major large Asian steel exporters polled by SteelOrbis state that they see major risks for the steel market from the war between US-Israel and Iran in the region, in terms of increasing freight rates, a lower number of cargoes available for the Asia-Middle East route, and possible transportation delays. This week, billet and raw material freight rates have increased from 15 percent to 35 percent, according to different sources. Generally, freight from Asia to Turkey rose by $5-7/mt, while in other destinations (even far from the conflict area) an increase has also been seen - from at least $2-3/mt to $7-8/mt, as oil prices have surged globally.

The outbreak of war in the Middle East has first of all affected shipping operations in the Persian Gulf, with passage through the Strait of Hormuz almost coming to a standstill. Many vessels have remained blocked in the Gulf, while many others remain on the other side of the strait. In the billet segment, according to SteelOrbis’ evaluations, from 150,000 mt to 200,000 mt of material were to be shipped to the GCC in March and April, mainly from Asian countries, while some cargoes were due to arrive from Iran. Buyers in the UAE are temporarily isolated, though buyers in Oman and Saudi Arabia can theoretically accept cargoes. However, one of the largest buyers in Saudi Arabia has stated that rerouting cargoes from Dammam to Jeddah is not so feasible due to the threats posed by the Houthis in Yemen to shipping in the Red Sea. In terms of trade routes out of the GCC, there are concerns mainly regarding disruptions of semis shipments from Iran to Asia and possible delays of HRC shipments from Saudi Arabia to Europe.

On Friday, March 6, the major Indonesian mill increased its offer price for billet to $470/mt FOB for April shipment, up by $10/mt FOB from March 5 and up $15/mt over the past week due to active sales and increases in prices in the local Indonesian market. The risks that some volumes already booked to Indonesia from Iran will not arrive are fairly high, so mills have been eager to buy locally or from China, having no other options as Russian mills in Asia are sold out. Iran had at least 150,000 mt of semis booked for the Asian market in February.

Bullish sentiments have prevailed in Southeast Asia’s import billet market this week, but, unlike the previous few weeks, some buyers have been more eager to purchase due to the disrupted supply from Iran. Two deals for ex-China billets are rumored to have been done to Thailand this week. One of them has been heard for 130 mm billet with manganese content of 0.6 percent minimum at $472/mt CFR for April shipment. The other deal has been heard for 150 mm 3SP billet at $460-465/mt CFR, $10-15/mt higher than the previous deal done for the same grade and size, but it is for May shipment and for sanctioned material. Also, one bid from Indonesia has already been reported at $470/mt CFR for Chinese 3SP billet on March 5. There have been no deals reported to the Philippines, but the tradable price level is estimated at not below $465/mt CFR in current conditions.

As for China, the local market has posted only a small increase this week, mainly supported by small gains in futures prices and stimulus measures promised by the Chinese government during the Two Sessions. Also, the yuan has remained rather strong, which supports FOB billet prices from China. Most offers from China have been at $450/mt FOB this week, while buyers’ price ideas have been at $445/mt FOB.

In Turkey, domestic billet offers are at $495-510/mt ex-works with small deals signed at the lower end of the range in the Iskenderun region for March production. However, according to sources, a small lot was also traded at $520/mt ex-works, in addition to the previous sale at the same price level. Turkish suppliers are mostly not being aggressive since even these levels are below their production costs. Their billet offers are set in accordance with local rebar prices standing at $545-565/mt ex-works depending on the region of the country.

Import billet offers from China have been fluctuating this week in a narrow range and have settled at $487-490/mt CFR for May shipments. According to sources, the level of around $490/mt CFR might be workable for those buying on a regular basis. Malaysia is back with $500-505/mt CFR offers for May shipments, with no takers seen in the market yet. Ukraine is offering 10,000 mt for April shipment at $530/mt CFR, which buyers consider a bit high for now. Overall, market players report there are some concerns among Turkish buyers regarding large billet cargoes from Asia, due to possible further rises in freight rates and probable risks in passing via the Red Sea. In addition, if the situation in the Middle East escalates further, doubts may arise about the seasonal revival of rebar demand in Turkey and so many mills might find it risky to buy billet today for June delivery.

In such a situation, Turkish buyers may opt for billet from the Black Sea/Azov Sea region, mainly Russia and Donbass since the allocation from Ukraine is limited and its prices are high. The SteelOrbis reference price for ex-Russia billet has remained stable at $435-445/mt FOB, while official offers are closer to the upper end of the range. In line with the global trend, freight rates to Turkey have inched up, settling at $26-30/mt depending on the region, with offers still reported by buyers at $460-465/mt CFR. Sellers, in their turn, state that only small buyers of up to 3,000 mt are in the market to negotiate, while large buyers are refraining from purchases in view of the unclear market conditions.

Ex-India billet prices have remained stable over the past week, while trading activity has remained silent with most mills focusing on much better local billet sales. Increasing demand from rolling mills have pushed up billet merchant trade prices by INR 1,000/mt ($11/mt) to INR 44,000/mt ($478/mt) ex-Mumbai and up INR 1,250/mt ($14/mt) to INR 41,250/mt ($448/mt) ex-Raipur in the central region.