Global View on Billet: More downside risks emerge after drop in China

- This week more downside risks have started to emerge in the global billet market as the Chinese market has collapsed this week, weighing down not only by weakened demand and the bad outlook, but also by emergence of increased supply to other outlets, as Asian traders are starting to try to redirect volumes from China. In addition, some signs of a slowdown have been seen in Turkey, which was the major driver of the uptrend last week.

- On October 21, the situation in the Chinese steel market worsened sharply as the major steel futures prices fell by their maximums on the day, reacting to news that the Chinese authorities will intervene in the coal market, aiming to ease prices which have hit record highs recently. Futures prices for steel have posted one of their worst weeks this year. As of October 22, rebar futures at the Shanghai Future Exchange are standing at RMB 4,900/mt ($765.6/mt), decreasing by RMB 615/mt ($96.1/mt) or 11.2 percent since October 15.

- In such a situation, the tradable level for imported billet to China has been reported at $650/mt CFR at the highest, down by $50/mt on average from last week. The market was hit not only by the worsening sentiment, but by a real drop in demand. Rolling mills in Tangshan’s Fengrun district were ordered to suspend production as of 24:00 on October 19. The restriction will last until the end of the month, to improve air quality. In Jiangsu, restrictions for rolling are also in place. As a result, Asian traders have started to actively offer their cargoes, booked for China, elsewhere - to Southeast Asia, East Asia, Turkey and the MENA region in general. SE Asian importers have been receiving offers for 3SP and 5SP billet at $680-700/mt CFR for position cargoes. Ex-India billet position cargoes have been offered at $690/mt CFR to Turkey. 

- The weak had opened on a positive note for the Turkish billet market. On October 19, local integrated Kardemir announced and closed its billet sales, after a long absence. The supplier’s prices were set at $715-720/mt ex-works depending on the steel grade, while many buyers had been expecting somewhat lower levels. As a result, the mill sold 67,500 mt of billet. Accordingly, it supported import billet prices. Some market players were saying early this week that $705-715/mt CFR levels could be acceptable for Turkish buyers of decent volumes from the large mills. 

- But sentiment has become less promising by the end of the week in Turkey due to the financial and currency situation in the domestic market, which has brought more uncertainty to the rebar business specifically. Ex-CIS offers have settled at $700-715/mt CFR, while the workable levels in the northern part of Turkey are at $690/mt CFR for small lots, while a re-roller in the Izmir region has reportedly booked a cargo at $700/mt CFR. CIS billet suppliers had been bullish since the middle of October, but now a further uptrend is doubtful, also because by the end of the week information about huge billet volumes being offered to Turkey by Asian traders has been actively discussed. Although the overall situation is found to be disturbing, most sources do not expect Turkey to book large volumes. The prices for billet from Asian traders vary depending on the origin from $690/mt CFR to $705-715/mt CFR, which is more or less in line with the ex-CIS levels.

- Indian billet export activity has fallen silent during the past week, after buyers from China stayed away and sellers were largely unwilling to push sales at a discount. Even the government-run mill which in recent weeks had been the most aggressive in submitting export offers was showing a slowdown. The mill had extended the deadline for one billet tender and canceled another one for 150 mm billet this week. Indian sellers declined to sell, setting a maximum discounted price of $630/mt FOB, only marginally down from deals concluded at $630-640/mt FOB a week ago. 

- The demand for imported billet which was seen in Southeast Asia at least for non-standard and higher grade materials last week has faded away. Prices have remained almost stable during most of the week, but cheaper position cargoes from traders have been available by the end of the week. Offers for the most popular 125-130 mm billet in the Philippines are still at around $710-720/mt CFR this week and some mills have even stopped offering, not willing to cut prices. On Friday, offers for position cargoes for ex-ASEAN billet have been reported at $690-700/mt CFR the Philippines, Thailand and Indonesia, while ex-India cargoes have been available at $680-690/mt CFR.