Chinese first-quarter steel demand surges over 50%

Chinese official economic data for the first quarter shows crude steel output has remained very strong despite attempts to curb production levels in Tangshan. This has been driven by the strong recovery in end user demand, which gained over 50% year-on-year in Q1, Kallanish calculates.

Chinese crude steel output in March was up 19.1% y-o-y to 94.02 million tonnes, according to the National Bureau of Statistics (NBS). This brought output over the quarter to 271.04mt, up 15.6% y-o-y.

Q1 2020 saw output constrained by the Covid-19 lockdown, but March data was also the second highest on record after August 2020. Mills were producing crude steel at an annualised rate of 1.107 billion tonnes/year. This shows steelmakers operating as close to capacity as they can, while margins have been strong.

As noted in last month’s Kallanish China Steel Intelligence, China does not yet have the policies in place to engineer a y-o-y decline in steel output.

China’s trade balance meanwhile moved in the direction of exports in March despite higher steel imports. This was in part because exporters were rushing through cargoes ahead of an anticipated change in export tax rebates. Accounting for this, China’s apparent finished steel demand was up 19.81% in March at 84.1mt, and up 15.36% over the quarter at 246.14mt.

The biggest difference between Q1 2020 and 2021 however has been in end user demand. Accounting for inventory change, implied end user demand in March was up 30.01% to 89.79mt, but over the first quarter demand was up 51.61% at 196.28mt. The increase over the quarter equates to roughly the one month of demand lost due to the lockdown in 2020.

On a daily basis, demand in March recovered both on-year and from the winter, but is in fact still slightly below the average for the second half of 2020. As the weak basis for comparison fades after Q1, China’s output and demand growth rates will also slow sharply, and could turn negative by the end of the year.

Turkey’s CRC exports triple to meet southern Europe demand

Turkish mills’ cold-rolled coil exports rose significantly year on year in the first two months of 2021 on higher European demand, especially southern Europe, amid availability issues in the region, S&P Global Platts observed from the latest data from the Turkish Statistical Institute (TUIK).

Turkish mills’ shipped 133,500 mt of CRC to global markets in the period, tripled year on year, although Turkey’s overall CRC exports totaled only 379,600 mt in all of 2020, amid trade barriers and the COVID-19 pandemic.

South European countries were Turkey’s top CRC export markets in January-February 2021. Italy imported 36,200 mt of CRC from Turkey in that period, sharply higher than the 2,500 mt shipped to the country in the same period the previous year.

Spain was at 22,500 mt, up fivefold on year, while Turkish mills’ CRC shipments to Belgium totaled 8,200 mt. Turkish mills’ also exported 6,800 mt of CRC to UK in that period.

Ongoing availability problems in the market, strong export demand and higher HRC pricing, pulled up Turkish mills’ CRC offer prices to as high as $1,250/mt ex-works and above in recent days, while mills’ HRC offer prices have exceeded $1,000 mt ex-works.

Demand in the domestic market, however, has slowed notably following these hikes, amid sharply depreciated Turkish Lira against the US dollar since March 20, following the dismissal of the Central Bank’s governor.

The bank’s Monetary Policy Committee (MPC) has decided to keep the policy rate (one-week repo auction rate) constant at 19% at a meeting held April 15 with the participation of the bank’s new governor, Sahap Kavcioglu.

Highlighting that demand and cost factors, supply constraints in some sectors, and high levels of inflation expectations continue to pose risks to the pricing behavior and inflation outlook, the bank stated: “The decelerating impact of the current monetary stance on credit and domestic demand is envisaged to become more significant in the upcoming period. Accordingly, the MPC has decided to maintain the tight monetary policy stance by keeping the policy rate unchanged,”

The currencies remained largely stable following the decision at Lira 8.08-8.12/$1 on April 15.

— Cenk Can

Worldsteel raises 2021 steel demand growth forecast to 5.8%

The World Steel Association forecast April 15 that steel demand will grow by 5.8% in 2021 to reach 1.874 billion mt, after declining by just 0.2% in 2020, as the overall impact of the coronavirus pandemic on the sector turned out to be less than previously foreseen.

In 2022, steel demand will see further growth of 2.7% to reach 1.925 billion mt, said worldsteel, which represents around 85% of global steel production.

The recovery has been largely led by China, which produces more than half the world’s crude steel. China’s steel demand grew 9.1% on year in 2020, but is expected to slow to a 3% growth rate this year and 1% in 2022, as the effect of the 2020 stimulus subsides.

In the rest of the world demand plunged 10% last year and continues to lag in advanced economies, said Al Remeithi, chairman of the worldsteel economics committee, in a short-range outlook statement. The pandemic continues to cause considerable uncertainty for the rest of 2021, he said.

“In these advanced economies, steel demand in 2022 will still fall short of 2019 levels,” Remeithi said. “In the coming years, steel demand will recover firmly, both in the developed and developing economies, supported by pent-up demand and governments’ recovery programmes. However, for most developed economies a return to the pre-pandemic levels of steel demand will take a few years.”

Quicker than expected rebound

Overall, however, the sector’s rebound from the impact of production stoppages and lockdowns during COVID-19 “has been greater and sooner than initially expected,” worldsteel Director General Edwin Basson said on a call with reporters.

The new short-range outlook revises up the worldsteel’s forecast in October 2020, which foresaw a 2.4% demand decline in 2020 and a 4.1% recovery this year to 1.795 billion mt.

The new forecast assumes that the ongoing second or third waves of COVID-19 infections will stabilize in Q2 and that steady progress on vaccinations will be made, allowing a gradual return to normality in major steel-using countries, worldsteel noted.

China expectations

China’s economy quickly rebounded from the lockdown in late February 2020, and its overall economic activity has been largely unaffected by the pandemic, unlike the rest of the world, according to worldsteel. China’s GDP growth of 2.3% in 2020 may accelerate to 7.5% this year, before moderating to 5.5% in 2022, the association said.

Work on new Chinese infrastructure projects continues apace following post-COVID stimulus, supporting steel, although for 2021 and onwards, real estate investment growth may decrease due to the government’s guidance to slow growth in the sector down, and to focus on more sustainable growth worldsteel said. China’s automotive sector – typically the second biggest steel consuming area after construction – reduced production by only 1.4% in 2020, it said.

“China is beginning to stabilize,” Basson said, referring to China’s intention that its economy should in future be driven more by consumer rather than investment demand. “There are strong signals from the Chinese government the market is at the level it should be. But even if China grows 2%-3% this still has a huge impact on steel demand.”

No overall change is currently foreseen in China’s role in the global steel industry, nor in typical global steel trade levels of around 400 million mt annually, he said.

Developed world

The developed world’s steel demand recorded a double-digit decline of 12.7% in 2020, worldsteel said.

“We will see substantial recovery in 2021 and 2022, with growth of 8.2% and 4.2% respectively. However, steel demand in 2022 will still fall short of 2019 levels,” the association said.

In the US, where a major infrastructure budget will be considered by Congress, steel demand recovery will be constrained in the short term by a weak rebound in the non-residential construction and energy sectors. The automotive sector is expected to recover strongly.

In the EU, recovery in 2021 and 2022 is expected to be healthy, driven by recovery in all steel-using sectors, especially automotive, and public construction initiatives. “So far, the EU’s recovery momentum has not been derailed by the ongoing third waves, but it remains fragile,” worldsteel said.

Japan, where the pandemic dealt a severe blow to the economy, will see only a moderate recovery in steel demand this year

Developing nations

Steel demand in the developing economies excluding China declined by 7.8% in 2020. Worldsteel expects these economies, including in India, MENA, Latin America, ASEAN, Turkey and Russia to show a relatively quick rebound in 2021 and 2022, with growth of 10.2% and 5.2% respectively. Accumulation of debts, no recovery in international tourism, and slow vaccination will prevent a faster recovery, it said.

Sectors

Global construction – the biggest steel-consuming sector – is expected to reach its 2019 level again in 2022, worldsteel predicts. This follows a 3.9% fall of global construction output in 2020, a substantially bigger fall than the 1.9% recorded in 2009 after the global financial crisis, it said.

Globally, automotive saw the most profound decline among steel-using sectors, typically on a double-digit scale, worldsteel said. However, the automotive sector is expected to recover strongly in 2021, due in part to pent-up demand, particularly in the US. The global automotive industry should also return to its 2019 level in 2022, it said.

— Diana Kinch

Record steel prices, pellet premiums follow strengthening steel demand

Higher steel prices and iron ore pellet demand since the fourth quarter followed stronger steel orders and consumption in developed economies, leading the World Steel Association to increase its 2021 steel demand estimates on April 15.

Steel-related industries rebounded quickly in Q3 2020, largely due to substantial fiscal stimulus measures and the unleashing of pent-up steel demand, leading to stronger demand forecasts.

Lead times at steel mills in Europe are stretching into Q3, with steel sales bookings at record prices, and that is supporting high-grade steel raw materials to maximize steel production, a senior steel group executive said.

Developed economies are now expected to see steel demand grow 8.2% to 371 million mt in 2021, worldsteel said in its latest Short Range Outlook report.

Even with the upgrade from a 363.5 million mt estimate for 2021 in the October SRO and further growth in 2022 to 386.4 million mt, developed steel demand would fall short of the 393.4 million mt in 2019, Worldsteel said.

Worldsteel acknowledged the ongoing pandemic effect on the global economy, with disruptions from waves of infections expected to fade.

Industry activity levels below the pre-pandemic level at the end of 2020 may improve, and eventually return to pre-pandemic growth after 2022.

Steel demand may be stronger still if raw materials supply improves to boost steel production and shipments. Some bottlenecks to steel capacity are easing, but with maintenance schedules and restart preparations.

MENA recovery

Worldsteel upgraded steel demand in the Middle East and North Africa region, which includes multiple DRI modules needing pellets.

A rise in oil prices helped the region’s steel demand to recover toward the end of 2020 and it was expected to “recover moderately with the resumption of infrastructure investments”, worldsteel said.

China’s steel demand is now expected to exceed 1.02 billion mt in 2021, up from the group’s 980 million mt October forecast.

Higher pellet demand has led premiums and prices to surge for Q2 from record low premiums in 2020. A shortfall of pellets is leading DR pellet plants to seek blast furnace grade and poorer quality substitutes, paying up to run operations at stable rates.

A March 31 fire at Rio Tinto’s Iron Ore Company of Canada was expected to disrupt iron ore pellet and high grade concentrate loadings and supplies available in Q2, with potential for a catch-up to shipments in the second half, market sources said.

Concerns around iron ore supplies and pellet feed qualities remain after Vale produced less pellets than estimated in 2020, forcing some plants to use more lump and lower-grade pellets at DRI plants as the market awaits Vale’s return toward pellet capacity.

Higher carbon permit prices have been supporting demand for pellets, in some cases in Europe to ensure surplus carbon requirements over free carbon allowances are minimized, and to meet sustainability and emissions reduction targets.

Met coke plants may be slow to ramp up, with stronger yields and coke qualities needed to boost steel utilization rates, according to industry sources.

Worldsteel’s latest forecasts, published in the semi-annual SRO, assumed the waves of COVID-19 infections will stabilize in Q2, and vaccinations will allow a gradual return to normality in major steel-using countries.

— Hector Forster

EU coil importers in wait-and-see mood

Importers of coil in Europe are reported to be in a wait-and-see mood this week as offers from suppliers are scarce and still expensive, but uncertainty is mounting over the third and fourth quarters.

Traders report that Indian hot rolled coil suppliers were active a few weeks ago with offers as high as €860/tonne ($1,029) cfr southern Europe, but this week offers have faded. Uncertainty related to Indian supply is mostly based on the possible confirmation of EU safeguard measures after June this year.

One trader reports Turkish HRC offers this week at €870/t cfr Italy, to which duties need to be added. Interesting offers are also being received from Asian suppliers in Indonesia, Taiwan and Vietnam at some €900-920/t cfr southern Europe.

“Buyers are cautious this week, as new orders will be delivered in Q3, and many fear the market will have turned by then,” the trader comments. “I personally believe Turkish offers remain the most interesting as duties are already known and could eventually only be reduced from the provisional measures in place; Indian suppliers, on the other hand, will always have the problem of safeguard measures.”

Meanwhile, some competitive hot-dip galvanized coil offers have also been heard from Turkey, Kallanish understands.

Emanuele Norsa Italy