Global View on Billet: China’s $20/mt collapse has ripple effect on international markets

This week has brought a lot of concerns to the global billet market as ex-China prices have collapsed by $20/mt, even though they were already at low levels after previous declines. So, this sharp fall has impacted all major international markets with overall demand being rather slow as it is hard to predict where prices will find the bottom.

Though prices in the Chinese billet market have been dropping since late last week, this week the pace of the fall has accelerated, recalling the peak export year of 2015. Weak credit data and the rapid drop in futures prices have contributed to this situation. The SteelOrbis reference price for 3SP billet from China has hit $430-435/mt FOB, $20/mt lower than last Friday. The latest two sales discussed this week were at $440/mt FOB first and $430/mt FOB later, though in general traders are not active in taking positions. This week, rebar prices in the local Chinese market fell to a seven-year low and HRC is at a four-year low, while prices of raw materials like iron ore and coke are also falling are not providing enough support. In addition, Chinese banks’ new RMB-based loans amounted to RMB 260 billion ($36 billion) in July, down by 88 percent from June and at the lowest level in 15 years, worsening the market mood. In this situation, more and more Chinese steel mills are eager to cut production in order to limit their losses.

Baowu Group has stated during its recent semi-annual work conference that the China steel industry is facing a tougher situation than in 2008 and 2015, describing the current situation as “a long and harsh industry winter”. The struggles of the Chinese steel market have deepened this year more than expected, according to the largest steel producer in the world.

The leading Indonesian mill has followed the downward trend and cut offers early this week to keep the gap with ex-China billet at not more than $5-10/mt. However, as Chinese billet prices have been falling almost every day this week, the gap has increased to $15/mt. Ex-Indonesia billet offer prices have dropped by $10/mt over the past week to $450/mt FOB. A deal for at least 40,000 mt was done at this level late last week and market sources believe it was done by a trader to cover its short position. Also, this week, traders have been testing the market with $445/mt FOB for ex-Indonesia billets. Some market sources believe that $440/mt FOB is also possible to get, but again, with better Chinese billet prices, there have been no takers. Ex-Malaysia billet sales at $505-510/mt CFR were done to Turkey last week, while no active offers have been heard this week. Ex-Malaysia billet price indications have been estimated by market sources at $460-465/mt FOB in the current market situation.

Trading activity in Southeast Asia’s import billet market has been slow as market participants have been waiting for the market to settle first and since it is still unclear whether prices have more space to move down. The SteelOrbis reference price for import billet in Southeast Asia has settled at $447-465/mt CFR, where the lower end represents negotiations for 3SP billet from China seen in Indonesia, while the higher end of the range is for offers for 5SP to the Philippines. The midpoint of $456/mt CFR is $14/mt lower compared to last week.

Billet market players in Turkey have been shocked by the rapid fall of ex-China billet prices seen this week, which happened due to the slump in the domestic market and in futures prices, while later the situation was aggravated by a mood of panic. As a result, Chinese billet prices, together with other Chinese steel product prices, have fallen to a historical low, and the trend has naturally affected the billet consuming and selling markets globally. In Turkey, offers for Chinese billet have dropped by at least $15/mt over the past week to $470-475/mt CFR in the latest offers. Much talk has been heard in the market about one or two large bookings by Turkish mills, rumored at $470/mt and $465/mt CFR, while some have even reported the level of $455/mt CFR. These reports have not been confirmed by the time of publication, but the levels are largely believed to have been possible. “There are a lot of rumors. It is hard to understand now where there are offers, bids or someone shorting,” a billet seller said. Other Asian suppliers are reported to be absent from the Turkish market with offers, since it is hard to compete with China price-wise, and the sellers may think it is better to wait for a price rebound. However, some sources believe Malaysia will not be in a position to go lower than $500/mt CFR since it is a duty-free origin in Turkey. Indonesian billet prices are evaluated at around $480-490/mt CFR, though lower levels are also possible. In the domestic market in Turkey, suppliers are trying to hold prices stable due to the minimal changes in rebar offers and also due to the lack of billet availability. The indicative levels stand at $530-550/mt ex-works, but prices are likely to drop next week with Kardemir’s announcement and also due to the lower import scrap prices already seen in the market.

The SteelOrbis reference price for ex-Russia billet has settled at $460-470/mt FOB Black Sea, moving down by $7.5/mt since late last week. The tradable level for billet from Donbass, the Ukrainian territory occupied by Russia, is as low as $480/mt CFR Turkey, as confirmed by a few traders and Turkish mills, while ex-Russia billet could be sold at $490/mt CFR Turkish Black Sea. Small-volume deals are done from the CIS at these levels. Though the previous bids for ex-Donbass and ex-Russia billets were at $490-495/mt CFR, market sources said that the pressure from the scrap market and the generally bearish mood have impacted prices, even though there are still limited offers for short lead times and small volumes.

Ex-India billet prices have been corrected down, following the sharp declines in China and another drop in bids from major customers. The tradable level for ex-India billet has settled at $435-440/mt FOB in the face of cheaper alternatives available in key destinations, compared to $460-465/mt FOB a week ago. Mills were resisting selling at the current low levels, though bids were lower and Indian producers still have allocations to sell due to the slow local market. A government mill which held an export tender for 20,000 mt on Tuesday (August 13) is reported to have received a highest bid of $435/mt FOB, significantly lower than the $458/mt FOB bid received in an export tender in an earlier week.