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Kallanish Kallanish

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September, 28th 2020

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Asia Steel Markets - Talking Points - August 2020

None Aug. 12, 2020 60 minutes

 

Overview

The Kallanish Asia Steel Markets Talking Points webinar was held on Wednesday 12th August. If you missed it, you can find the video recording and presentation materials here on this page. 

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Download the Presentation & Watch the webinar

You can download the webinar presentation from the Asia Steel Markets Talking Points Webinar - August edition by clicking here.

 

 

 

 

Watch the recording below on our youtube channel.

 

Questions & Answers

Q: Tata has kept its Southeast Asian Ops as held for sale for the last four quarters. How long does it intend to keep it that way? Is there any deal possible in this environment?

A: We put this question to Rajiv Mangal and he said, “Tata Steel continues to scout for suitable partners for its South East Asia business. M&A activities are bit slow in the current environment. However discussions are underway with few companies.”

Q: Given the current fiscal situation of India, is it a real possibility that Indian steel demand in FY22 is still 10-15% lower than in FY20?

A: Worldsteel forecasts Indian finished steel demand to plummet -18% on-year in 2020 to 83.3 million tonnes and rebound 15% on-year in 2021 to 95.8mt. This will compare to 101.5mt in 2019, indicating a drop of 6% between 2019 and 2021.

The successful implementation of India’s $1.5 trillion National Infrastructure Plan will be critical to boosting consumption. Although its initial schedule of 2020-2025 may be delayed by 1-2 years, most observers expect the scheme to be carried out and help lift India out of the Covid-19-induced economic slowdown.

Q: How will the pandemic shape India’s plans to have 300m t/y steel capacity by 2030?

A: The pandemic impact has placed India’s steelmakers in survival mode and reduced their capital expenditure plans. The planned increased capacity is designed to cater to the anticipated growth of the domestic market, but activity in this market has been curtailed by the pandemic. Until the virus is brought under control and the economy stabilises, further capacity additions in India are likely to be postponed. The 300 million tonnes/year figure was in any case ambitious and more of a target to strive towards rather than a realistic tonnage. Nevertheless, Tata Steel and JSW Steel continue with their large expansion plans.

Q: Kallanish has said there is around 70m t/y of new steel capacity being commissioned or planned over 2018-2027. Has Covid-19 impacted these plans?

A: Some plants have recently commissioned and are struggling with a weak market. For the most part, these are mainland Chinese investments which have maintained output largely by increasing sales into China. Taiwanese/Japanese invested Formosa Ha Tinh in Vietnam has also turned to exports to China however, and Vietnam’s Hoa Phat has been selling large volumes of billet into China at the same time as commissioning facilities at its new Dung Quat steelworks. For future investments, things have gone quiet as a result of Covid-19. This was initially because of restrictions on moving staff and equipment to and from projects, which was causing delays. Demand issues are likely to be a factor for any plant commissioning this year or next. The region is still expected to see demand growth however, and some key economies have a structural deficiency of crude steel output, such as the Philippines. There remain strong incentives to invest in these economies, even if investors will likely be looking for more political and economic stability to ensure their investments pay a return. So despite Covid-19, capacity in the region is still likely to increase over the next few years. One other factor that could impact the pace of growth could be the availability of financing as banks are becoming more cautious in their lending.

Q: What will China’s policy be regarding tariffs on growing imports?

A: Some Chinese mills have threatened investigations into imports of particular products. So far however these have remained threats. China has historically used trade measures to protect key companies such as in duties against imports of stainless steel, or to boost productivity, as in duties against high nickel alloy seamless pipes. In the current scenario productivity would not be boosted by tariffs. That situation may change if imports continue while China’s demand/supply balance loosens.

Q: Will China’s policy re scrap imports change in the coming 12 months?

A: China has released a ban on imports of waste products which has affected metal scrap as well as plastics, paper and other waste. That means imports can only be made under license, and licenses have only been issued for several tens of thousands of tonnes in a year, far below what the industry is able to consume. While there is no confirmation about a new policy, one is widely expected. Both the China Iron and Steel Association and the China Association of Metalscrap Utilization have lobbied for more imports to be allowed. The speculation has been supported by the fact that China is currently consulting on its new five-year plan for the economy. This is due to be passed around March 2021, and is expected to include goals such as increasing scrap use in steelmaking. Issuance of licenses to import ferrous scrap has also increased sharply, although not to levels that are likely to impact markets. It would be surprising if there were no change to the import restrictions considering the wide range of players supporting a change, and the change being in line with wider economic goals.

Q: Do you expect Japanese BFs to restart production by the end of the year?

A: Some may but many will not. From Nippon Steel for example, the blast furnace the was shutdown in February at Setouchi was already planned to be shut down in financial 2021 in any case. Blast furnace No. 2 at Kyushu Yawata was banked in July but was also already going to be shutdown as part of the company’s restructuring plans. A bigger decision will be around Wakayama BF 1, which was banked on 25 April but was planned to be shut down in the first half of 2022. Nippon Steel expects non-consolidated crude steel production of 16.9 million tonnes in October 2020-March 2021, up from 14.9mt in April-September 2020, suggesting at most one blast furnace is likely to restart, likely from the East Nippon complex.

Q: Indian exports have been reduced by a recovery in demand. How long can such a trend continue?

A: Indian mills will export when it is profitable or when demand in their domestic market is insufficient. During the second quarter it was a case of the latter – as the pandemic paralysed the local market, Indian steelmakers considerably boosted shipments abroad to compensate. Indian output has been cut back aggressively during the crisis but demand has also fallen. With any recovery in demand is expected to be limited, sources suggest mills may not seek to increase output. That suggest supply may remain tight and a modest increase in demand should mean fewer exports. Currently demand appears to be mainly domestic restocking, but the end of the monsoon season and Diwali later in the year usually mark the start of India’s peak demand season.

Q: Do you think steel prices will recover in 2021?

A: This will depend very much on the region. Many areas, including Southeast Asia, are expected to see stronger demand in 2021, which should lead to higher capacity utilisation. Regional governments are expected to set aside and allocate public spending on construction infrastructure by next year, after they manage the pandemic. Chinese exports are also not likely to increase significantly while the balance of supply and demand there remains so tight. Steel prices, especially for flats, may be undermined if iron ore prices pull back, but in terms of demand and utilisation steel markets in most of the world (outside China) are likely to be much more supported than in 2020.

Q: You asked when iron ore prices could fall, but could they also go higher?

A: It was certainly not our intention to suggest that iron ore prices could not go higher, only that they are likely to eventually fall again below $100/t. In our poll, more than half of participants expected prices to fall under $100/t in Q3 or Q4 this year, with a majority of those expecting it in Q4. Considering our outlook for Chinese steel demand and production in the coming month or two, there is certainly an opportunity for prices to head higher than current levels (KORE 61%Fe @ $121.68/dmt cfr Qingdao) in the coming weeks.

Asia Steel Markets - Talking Points - August 2020 Aug. 12, 2020

Join the Kallanish Asia Steel Markets Talking Points webinar on Wednesday 12th August. Asia is at the heart of the key issues affecting the steel industry globally, and its role throughout the coronavirus outbreak to date has emphasized this. The webinar will focus on Asian and global steel markets reviewed by the Kallanish editorial team and guest speakers.

Rajiv Mangal, President & CEO, Tata Steel (Thailand) Public Company Limited

Rajiv is a Bachelor of Engineering (Honors) in Metallurgy from University of Roorkee (now IIT Roorkee) and has done Post Graduate Diploma in Business Management from XLRI Jamshedpur. He has also done Advance Management Programme from CEDEP (INSEAD, France). Recently he completed Director Certification Program from Institute of Directors Thailand. Over the last 27 years, he has worked in manufacturing, planning, marketing and sales of steel. He is part of the senior management team of Tata Steel since 2001 and has held various positions such as Business Head for Steel Tubes, Steel Wires and Wire Rod Mill. Currently he is posted as President & CEO of Tata Steel Thailand pcl.

Tomas Gutierrez, Managing Editor Asia, Kallanish

Tomas is the Managing Editor Asia for Kallanish and produces editorial content on the region, with a focus on China, as well as overseeing Kallanish's operations in East Asia. He is based in Shanghai, where he has lived and worked for the last six years. Tomas speaks Mandarin as well as English and Spanish. He has also spent three years in Beijing studying and working. Previously, Tomas worked at Steel Business Briefing, where he joined shortly after graduating with a masters degree in Asian politics from SOAS in London.

Anna Low, Steel Journalist SE Asia, Kallanish

Steel

Anna Low has covered the South East Asian steel and metals industries since the 1990s. Before joining Kallanish in September 2017, Anna was with Platts and before that, she was with Steel Business Briefing and metal Bulletin. While she has witnessed and tracked so many cycles in the steel markets, no two days are ever the same. Writing steel news and assessing prices are a huge part of who she is. Anna enjoys the work very much especially interacting with the key industry players and participants over these past 20 something years.

Maryam Wang, Steel Journalist China/N. Asia, Kallanish

Steel

Maryam joined Kallanish in 2018 and she covers the Chinese Steel Markets. Previously she worked for one of the major online steel trading platforms and then for a PPGI exporter. Maryam also speaks Arabic.