Asian steel faces tough Q4 on low demand, easing output curbs in China

This report is part of the S&P Global Commodity Insights’ Metals Trade Review series, where we dig through datasets and digest some of the key trends in iron ore , metallurgical coal, copper , alumina, cobalt , lithium , nickel and steel and scrap. We also explore what the next few months could bring, from supply and demand shifts, to new arbitrages, and to quality spread fluctuations.

Asian steel prices are likely to be under pressure in Q4 from easing production controls and low local consumption in China, amid a weak construction and property sector, while higher import demand from India following its monsoon season will offer limited support.

China could see ample supply of steel next quarter unless the government restricts the output of mills, and it is unlikely for there to be enough domestic demand to balance out these higher volumes. Market sentiment was lifted by news of output mandates in early August, but there were fewer such indications at the end of Q3.

“As of mid-September, Chinese blast furnace utilization rates were as high as 93%, up from 92% at the end of August,” said Paul Bartholomew, lead metals analyst at S&P Global Commodity Insights, citing market sources.

If there are no government-mandated controls in 2023, production might stay relatively high and exports will remain a reliable outlet for Chinese steel.

“China’s finished steel exports are on track to reach a seven-year high in 2023 as domestic demand can’t absorb the increasing amount of steel produced this year,” said Paul Bartholomew in the Ferrous Market Analytics report published Sept. 25.

China’s export prices have remained under pressure since mid-August and sources expect them to remain rangebound in Q4. Domestic and export prices had started to diverge in mid-August amid support from positive macroeconomic sentiment and expectations of output cuts. Prices converged again towards October, as the domestic market weakened on higher production and weak demand from the property sector. Chinese HRC prices ended Q3 at Yuan 3,820/mt, retreating 6.6% from the season peak in end-July.

“High iron ore and coal prices could support the steel market [in Q4], while demand would hardly see any significant improvement with high capital costs,” said a Vietnam-based trader.

Any implementation of Chinese production cuts or economic policies could also strengthen prices.India remains bright spot

Meanwhile, a few India-based sources said the country’s domestic market would import hot-rolled coil going into Q4 amid a favorable price spread to seaborne markets.

“Import flows are likely to take place this quarter. Currently, global demand is available in very few pockets. India’s market will continue to be in good demand, especially since the monsoon season has passed,” said an India-based mill source.

India’s steel consumption is expected to grow 7.5% over 2023-24, according to Indian Steel Association, driven primarily by a rise in demand from the construction sector.

China’s domestic demand, on the other hand, is expected to be flat in 2023-2024, with the National Bureau of Statistics reporting a 24.4% year-on-year decrease in new housing constructions.

“Despite declining property construction, demand is supported by infrastructure and manufacturing, especially auto-making,” said a Chinese trader, adding that “[steel] demand recovery has been limited.”
Reflecting the contrasting fundamentals, Chinese exporters have been seeking opportunities to export steel to India. This is likely to continue in Q4 amid a favorable spread between Indian and Chinese HRC prices, which stood at $168.24/mt Sept. 29 compared with $67/mt Feb. 17.

A Mumbai-based trader said India’s imports of HRC from China and Vietnam will reach around 170,000 mt over November-December.

Some Chinese and Vietnamese mills are actively trying to renew their Bureau of Indian Standards (BIS) certificates — mandatory for companies to distribute steel in India — to leverage the currently open arbitrage.

Japan still major scrap exporter
Asian scrap prices remained rangebound in Q3 as a lack of seaborne demand was balanced by Japanese mills buying at strong prices, with the trend likely to continue into Q4.

The Platts HMS 1/2 80:20 containerized CFR Taiwan price was relatively stable in Q3 with a low of $355/mt July 19 and a high of $373/mt Aug. 21. HRS101 CFR China fell from $406/mt July 3 to $403/mt Sept. 29 amid a lack of buying in China.

The H2 FOB Japan price was also stable, with levels at Yen 50,000/mt July 5 and Yen 51,000/mt Sept. 27. Export prices fell 3% to $342/mt over the same period due to a weaker local currency.

Japanese steelmaker Tokyo Steel is trying to reduce the country’s ferrous scrap exports by keeping its prices competitive with seaborne markets. Major importers of Japanese scrap like Vietnam and South Korea have turned to domestic material instead.

The country remains the dominant supplier of steel scrap to East Asia, accounting for 61.6% of South Korea’s August scrap imports. Japanese exports to Taiwan exceeded volumes from the US for the first time in three years in June.

“Tokyo Steel will eventually raise domestic prices to a point that prevents export,” a Japanese trader said.