Global View on Billet: Russian invasion of Ukraine blocks market, more severe sanctions on Russia awaited

This week has been difficult for the global markets and especially for the Ukrainian nation as Russia has initiated a massive invasion into Ukraine on February 24. As of now, the major Ukrainian mills have suspended production or reduced production to a minimum and its ports are closed. Trading with Russia has also been suspended as, despite the sanctions announced on February 24, new more severe measures are expected soon. As a result, the global billet market has almost come to a standstill by the end of the week, with deals only heard for ex-Turkey billet done by traders which have needed to cover previous positions, and with earlier rare bookings heard in Asia.

- Along with the direct threat to people’s lives, Ukraine’s transportation and logistics systems are under threat, as well as major industries, including steel. ArcelorMittal has announced that it has taken the decision to work on slowing down operations in Ukraine to a technical minimum and to halt production at its underground mines. The company’s asset in Kryviy Rih is one of the largest steel producers in Ukraine and one of the major exporters of steel billet and long products. Interpipe group, a large pipe producer in Ukraine, has announced that it has decided to temporarily suspend its operations. The company has stopped production at its assets in the Dnipro region. Ferrexpo has issued a force majeure notices on pellet exports to certain customers that had been due to receive the company’s products via oceangoing vessels in the near term. Ukraine-based Metinvest officially announced at 17:30 Kiev time on February 25 that it has decided to suspend operations at some facilities of Ilyich Iron and Steel Works and Azovstal. The decision was made by the company’s response center in order to ensure the safety of its employees and preserve equipment. 

- All Ukrainian ports are non-operational, either having been captured, destroyed, or currently being fought over being either captured, destroyed, or fought over. According to SteelOrbis’ evaluation, Egypt is the largest market which may suffer from the failed suppliers’ inability to meet orders, as around 200,000 mt were booked from Ukraine alone for March and April shipments. Among the other large buyers, who booked their cargoes earlier are Turkey, some North African countries and Latin America. In this situation, traders are trying to compensate for their earlier booked positions and currently Turkey is the only source where they can find these tonnages. The market information says two deals for 20,000 mt and 25,000 mt of billet from Turkey were closed at $720/mt and $729/mt (might include some extras), both most probably destined for export. Another 20,000 mt sale has been reportedly closed by a mill located in the north of Turkey to an international trader at $720/mt FOB. Previously, the highest workable billet export price in Turkey was around $700/mt FOB. Before the invasion of Ukraine started, the workable ex-CIS billet export price was standing at $680-690/mt FOB.

 - There are already issues reported in dealing with Russia’s billet, despite that the port of Novorossiysk is working in a normal mode. A number of traders and buyers prefer not to take risks in working with Russia, taking into account the already imposed and further expected sanctions, which lead to huge financial and operational uncertainties. “No offers from Russia [from mills for billet to Asia] now. I don’t think that anyone will touch it,” an international trader from Singapore said. US President Joe Biden announced sanctions on Russia On February 24, in response to the Russian invasion of Ukraine. The second round of sanctions targets Russian banks, including state-backed Sberbank and VTB, along with wealthy individuals and families, freezing their US assets. A new round of sanction is expected soon, especially from the EU. 

- The import billet market in Southeast Asia is expecting further price increases in the near future despite resistance from the majority of buyers. The deals to the Philippines have been done for ex-ASEAN 150 mm billet, for Indonesian and Malaysian origin material, at $695-705/mt CFR the Philippines last week, while a contract for ex-Russia billet has been heard at $715/mt CFR, for 125-130 mm billet, which, however, is hard to confirm as all market sources believe that customers will reject purchases of material this origin. “There was a consolidation of offers happening at around $710/mt CFR levels [from a trader offering ex-Russia billets], but buyers would be cautious now, I believe… We are expecting sanctions on Russia,” an international trader said. 

- China has been out of the market for billet imports this week. Though the tradable price level had increased by $5/mt early in the week, to $660-670/mt CFR amid some rises in futures prices, by the end of the week it has retreated again, to $650-660/mt CFR, which is $5/mt below the level seen last week. The latest offers for imported billet to China have been at $710-720/mt CFR for material of different origins, and so the gap between offers and bids is still too wide for imports to revive any time soon. Though in general China is expected to accelerate steel imports this year, for now it is out of the market. And Chinese traders are mainly focused on the trading of position cargoes in the region. One of the Chinese traders has made a deal for ex-Indonesia billet to South Korea at $725/mt CFR during the week. 

- Ex-Iran steel billet export trading has slowed down lately due to the lower demand pervasive in particular in Asia, the main destination for Iranian steel. Even though official offer prices have remained at the previous week’s level of $610/mt FOB, most Iranian billet exporters have been ready to cut their prices in order to obtain sales. By the middle of the current week, a major Iranian steel billet producer has succeeded in selling 20,000 mt of steel billet at $603/mt FOB, for delivery in late March. Meanwhile, another Iranian steel mill has cancelled its auction for 30,000 mt of billet, for delivery in the first half of May amid unattractive bids from customers. Weak demand has led to a decline by $8.5/mt on average in the weekly reference price for ex-Iran billet. 

- Indian suppliers have remained bullish this week, but the market has been muted as government-run steel mills have continued to ask for higher prices, while bids have not improved much, and private sellers have continued to stay away and not conclude deals. Ex-India billet prices are at $648-655/mt FOB, versus $648/mt FOB last week when the tender at this level was closed. The higher end corresponds to one bid heard in the market, but at the moment most suppliers are still asking above $665/mt FOB, while private sector producers are voicing $680-690/mt FOB.