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GLOBAL SLAB OUTLOOK: Sentiment Turns Bullish On Thin Supply, Costlier Raw Materials
Feb 06, 2019

Market participants were positive in their forecasts of export prices from the Commonwealth of Independent States (CIS), following the recent increases in global iron ore and scrap prices.

Fastmarkets’ daily index for Northern Europe-origin HMS 1&2 (80:20) stood at $297.39 per tonne cfr Turkey on February 1, up from $279.16 per tonne cfr on January 2.

Limited slab supply will also provide support to CIS prices.

“CIS mills are already well booked for March-shipment cargoes, and prices have improved,” one trader said.

“Also, Novolipetsk Steel (NLMK) will be out of the market soon, and that has contributed to the bullish sentiment on prices,” he added.

Russia’s largest steelmaker NLMK will put one of its blast furnaces on half-year maintenance in May, which will reduce its slab output and further tighten supply in the CIS export market.

Recent Ukrainian offers for March-rolling slabs were $445 per tonne cfr Turkey, equivalent to $430 per tonne fob Black Sea. Turkish customers said the offer price was high compared with the latest CIS-origin bookings made at $425 per tonne cfr Turkey.

But one CIS producer said there was no reason for CIS mills to keep their slab offers stable because finished flat steel prices in Turkey had increased sharply. Fastmarkets’ weekly price assessment for Turkish domestic hot-rolled coil was $515-520 per tonne ex-works on February 1, up $20 per tonne from a week earlier.

The weekly assessment of CIS export slab prices surged to $430 per tonne fob Black Sea on February 4, up $15-25 per tonne from a week earlier, and an increase of $25-30 per tonne from January 8.

Market participants were likewise optimistic about Brazilian slab export prices, and expected increases of around $20-30 per tonne in the coming weeks.
The rising cost of raw materials, including iron ore, was the reason for the improved sentiment, sources said.

Iron ore prices soared this week after Vale in Brazil announced output cuts due to a dam failure.

Fastmarkets’ daily MB 62% Fe Iron Ore Index climbed to $85.53 per tonne cfr China on February 1, up $13.46 per tonne from January 2. The index is at its highest since March 2017.

There was no sign of supply interruption, but market participants expect spot iron ore prices to remain high in the short term.

“Most of this expectation of price increases is related to raw materials,” a source said. "Not only is iron ore is rising, but ferrous scrap and [coking] coal prices are also strong.”

Another positive factor for the Brazilian slab market would be the higher flat steel prices in the United States.

US steelmakers have been attempting to increase their prices for finished flat products by as much as $40-50 per short ton, which means they would be able to pay higher prices for slab, a source said.

The change in sentiment for Brazilian slab comes after a month of price drops.

Fastmarkets' weekly assessment for Brazilian export slab was $410-460 per tonne fob on February 1, down $15-20 per tonne from January 4, mostly due to weaker flat steel prices in most global markets.

Import prices for slab in Southeast Asia and East Asia are set to rise further this month amid rising offer levels, although actual demand is likely to stay sluggish amid the Lunar New Year slowdown as well as depressed finished flat steel markets.

Many Asian markets have public holidays for the Lunar New Year during the first week of February, but some participants will only return to the market in mid-February or near the end of the month.

A South Korean buyer source said re-rollers preferred to wait for clearer price directions to emerge after Asia's festive season, once demand picks up again.

In Indonesia, procurement activity will stay muted due to slow downstream sales as well as the country’s upcoming general elections in April.

Regional prices rebounded in early February, after an extended downtrend amid persistently soft demand. Fastmarkets’ weekly import price assessment for slab in Southeast Asia and East Asia had slumped to an 18-month low on January 28 at $415-425 per tonne cfr.

But the assessment range rose to $430-445 per tonne cfr on February 4, up $15-20 per tonne week on week.

The price rebound was thanks to suppliers hiking their offers up, supported by higher prices of steelmaking raw materials as well as the surprise recovery in Chinese flat steel prices in January.

“Chinese exporters have been very aggressive at increasing offers [for HRC and plate] since late January, so other international mills also followed with higher offers, including for slab,” a major East Asian mill source said.

Meanwhile, the East Asian mill does not plan to issue new slab offers in February. “We won’t have slab allocation for export, at least for the next one month,” the mill source said on February 1.

Iranian slab export prices are expected follow the uptrend in the CIS market in the coming weeks.

But it will be challenging for Iranian exporters to achieve higher booking prices, seeing as many customers are refraining from doing business with the Middle Eastern country due to the transport and payment issues caused by the US sanctions, sources said.

The US reimposed sanctions against Iran in August 2018, which directly affected the Iranian steel trade and made it more complicated to sell steel products out of Iran. The sanctions also restrict banking and shipping activities between Iran and any foreign country using US dollars in transactions.

Recent slab deals from Iran were heard done at $375-380 per tonne cfr Thailand in the second half of January. That price range is equivalent to $320-330 per tonne fob Iranian ports.

Offers from Iran were also heard in Indonesia at $405-410 per tonne cfr, equivalent to $355-360 per tonne fob Iran, in late January.

Market participants voiced concerns that the price increases target by Iranian suppliers may not be accepted by customers in Asia - one of the largest outlets for Iranian slabs - due to the region’s Lunar New Year holidays this month.

Fastmarkets steel slab prices