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These two fundamental steel raw material inputs were analysed by the Kallanish editorial team on Wednesday the 19th August 2020.
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You can download the webinar presentation from the Scrap and Iron Ore webinar - August edition by clicking here.
Watch the recording below on our youtube channel.
These are the questions which were asked during the live showing of the Scrap & Iron Ore Markets Webinar. Some of these questions were answered live, but we didn't have time to answer them all. Please see the Kallanish editorial teams answers below.
Q: Do you think the low price of coking coal is supporting iron ore buying in China?
A: To a certain extent yes. Coking coal prices have been kept low because the seaborne market is shaped more by markets outside China than iron ore. China has its own supply and also a limit for coking coal imports from Australia. The main reason behind high iron ore prices however is high Chinese pig iron output, and the two key factors behind that are China’s strong response to the covid-19 downturn and the fact that it cannot import scrap.
Q: Do you expect China to buy more scrap?
A: China currently still has a strict licencing system for ferrous scrap imports. While more licences have been issued for the second half they are still a strict limitation on import volumes. There has been significant lobbying for a loosening of restrictions however and many industry players expect more scrap imports to be allowed soon. The most likely scenario is that this will be part of the next policy-setting cycle and restrictions could be eased at the end of Q2 2021.
Q: How do you see the iron ore market next year if global steelmaking also recovers?
A: The question will be how much does the global steel market recover? In China, demand for iron ore cannot realistically increase further, and if scrap becomes more competitive it could even decrease slightly. At the same time, iron ore supply should continue to incrementally increase. If there are no disruptions to supply and the recovery in global demand is modest, as seems likely, then iron ore may not hit the peaks seen in this year in 2021.
Q: Why are Chinese coil prices higher than Indian coil prices?
A: The key here is the speed with which China boosted its manufacturing sector, and the later impact of covid-19 on India. While China saw the biggest impact on demand in Q1, by Q2 it was focussed on boosting manufacturing activity and employment. Automotive output recovered to 2019 levels rapidly, and some white goods saw production levels increase from 2019 thanks to stimulus and the hot summer (for air conditioners). In India meanwhile the impact of covid-19 came mainly from Q2 and the recovery has been slower. The recovery could not occur before the monsoon season and so demand has remained low. Now that India is close to coming out of its weak demand season and Chinas peak demand season will pass in the coming months, that price difference may narrow.
Q: How will demand be for finished and semi-finished steel products in the coming months?
A: In China, demand for long products is expected to continue to improve over the coming month and that should sustain billet and rebar. Flat product demand is also likely to remain firm before a seasonal slowdown in the winter. In Southeast Asia, steel demand is in a weak season and is unlikely to improve significantly until the end of the year. For producers in the region therefore, exports to China are likely to remain important until local demand improves at the end of the year.
Q: What are the key factors which will keep iron ore prices high or even going higher?
A: The biggest factors are tight port stocks and strong Chinese demand. Demand is not expected to decline until the end of autumn. Supply should increase, but with port stocks for key products currently so low, this may not depress prices until Q4.
Q: Pellet and lump premiums are low. How long will this last?
A: This goes back to the strength of the market and the fact that fines stocks are so low. There have been traders moving to grind pellet back into fines but there is limited grinding capacity and so the impact of those moves on prices will be slow to materialise. Premiums may remain low at least until fines prices start to come off in the coming months.
Q: Do you expect some ‘Blue Sky’ policy to restrict production in the winter?
A. These policies remain in place and steelmakers are still being graded based on their environmental performance. The difference this year however is that most steelmakers should attain a far higher standard than in winter 2019/2020. Those meeting requirements will be exempt from production restriction policies. The impact of these policies on output is therefore likely to be less dramatic.
Q. What happens if second wave of pan. come, about scrap collecting and price?
A. Most probably we will face restrictions and lockdowns. In such a case, scrap collectors will be unable to collect and supply will decrease. On the other hand, utilization rates of the mills will also decrease and cause scrap demand to decline. As a result, both supply and demand is expected to fall if a second wave of the virus hits the markets.
Q. Steel BIllets, CIS Price Predictions (Sep - Oct, 2020)?
A: Most of the time scrap and billet prices follow similar trends in Turkey. However, it may change now as there is no problem in scrap supply but China is importing billets. Largest billet supplier for China is the CIS. Although we can not make a price prediction, we expect billet prices to remain firm as long as China continues importing.
Q. How do you see rebar demands will come from Middle East countries for Turkish products?
A. We are not expecting a significant grow in ME demand for Turkish rebars due to trade restrictions. With the expected contraction in steel consumption, we expect trade measures to increase.
Q. What is the effect of euro/usd parity on scrap price?
A. The stronger euro increases EU suppliers’ costs on USD basis. With the increase in costs, EU suppliers raise offer prices and/or can not offer discounts etc.
Q. There is a temporary ban imposed in South Africa on scrap exports(a major exporter and provider of scrap). This is suggested to be followed by an export tax. How will this effect Scrap prices?
A. It has not effected scrap prices so far. Not a significant effect in the near term is expected. Specifically, this year scrap demand will mostly likely to fall due to lower capacity utilization rates. As a result, a decline in the supply is not expected to have a significant effect on prices.
Join the Kallanish Scrap & Iron Ore Markets webinar on Wednesday 19th August, 13:00 BST to hear from these great speakers live, and have the opportunity to put your questions and comments directly to them.
Please remember that you have to register in advance for the webinar and when you do, you will recieve a confirmation email with a unique joining link. If more than one person from your organisation wants to join please make sure that they register individually as your access link will not work for other people.
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.
Burcak brings 15 years experience in covering global long products and scrap pricing. She is responsible for the Kallanish daily scrap assessment in Turkey, as well as European shredded and US domestic and export pricing . She is based in Istanbul, prior to joining Kallanish she worked in SteelOrbis as director of Research.
Having graduated from university in England's steel city of Sheffield, Adam was destined to end up in a career related to the steel industry. He has worked at Kallanish since 2014 as an editor for The Middle East and Turkey, as well as CIS and Eastern Europe, contributing his experience gained from five years in Dubai of the vibrant and fast-growing Middle Eastern and Turkish markets. Adam regularly attends events in the Middle East and Europe, moderating and speaking at some of them. He was previously steel editor at Platts in Dubai and before that Central and Eastern European reporter for Steel Business Briefing in London. Adam prides himself on providing friendly, informative and accurate journalism. He is currently based in Frankfurt and speaks fluent Polish and intermediate German.
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