South Korea's billet export offers spark fresh supply pressure on East Asian mills

Fresh offers this week for South Korean billet to East Asia sparked additional supply concerns to regional mills amid slackened demand in light of COVID-19, industry sources said.

South Korean billet was reported to have been offered at $418/mt CFR Manila on Thursday. However, this was pitted against more attractive offers for billets produced in Vietnam, Japan and Russia, which ranged between $410/mt and $416/mt CFR levels this week.

"The seaborne market is already saturated with additional blast furnace capacity this year," a Vietnamese billet producer said, referring to the firing up of PT Dexin's first blast furnace in late February. "This will add more pressure to the market. It is in a state of oversupply."

The S&P Global Platts Southeast Asian billet assessment has since slipped $31/mt off January's high, having ended March 6 at $414/mt CFR. This, in comparison with the last peak in March 2018, reflected a significant 24% tumble, or a $128.50/mt fall.

WEAK DEMAND ADDS PRESSURE TO A PERFECT STORM

Meanwhile, weak product demand as a result of the coronavirus pandemic, has grieved Southeast Asian steel makers and re-rollers alike, a regional source said.

"In Manila, the first half of the year is usually the peak period for construction, before the rainy season hits in the second-half," a re-roller based there said. "But a lot of Chinese [construction] projects are now being delayed due to the travel restrictions in place."

The Philippine's demand for billet was also hit earlier this year, prior to the outbreak of the coronavirus, as six re-rollers were reportedly suspended from production as their product grades failed to pass the DTI-Bureau of Philippine Standards, or BPS, evaluations, Platts reported previously.

Adding to the woes, was the announcement by the Philippine government on Thursday of a lockdown, effective March 15, to Metropolitan Manila, in an attempt to prevent the spread of the coronavirus.

"This will add further pressure to construction in the city. Details are still not yet made clear by the government on the level or tightness for the lockdown," the source added.

Near-term outlook within the region too was pictured with more bears, as the week long break for Eid in Indonesia will fall mid May this year. "Buying will slow for April-May as seasonally, the country would be seeing less activities during the festive period," an Indonesian steelmaker commented.

S KOREAN EXPORT RELIEVES PRESSURE IN COUNTRY

Views in South Korea were different, however, as industry sources looked to the export market as a means to release the mounting supply pressure from fading domestic demand.

"This could help reduce pressure for the mills here if they engage with more export business. They can expand their market [outwards] because it has been too quiet for the past few quarters domestically," a South Korean trader said. "Not to mention the really bad start for 2020 [and] Q2 outlook too is not looking so good."

January's crude steel production for the country marked a year-on-year fall of 8%, and a month-on-month decline of 2.1%, to 5.75 million mt, latest data from the Worldsteel Association showed.

Raw material imports had weakened too in January, with iron ore imports falling 17% month on month to 6.36 million mt, while ferrous scrap marked a 21% month on month fall to 410,361 mt, latest custom data showed.

POSSIBLE DIVERGENCE ON JAPANESE BILLET FLOW

With South Korea also Japan's second largest importer of Japanese billet, regional market participants have raised concerns that a rising interest for exports could deviate the flow of Japanese billet into Southeast Asia given the similarly ailing domestic steel demand in Japan.

Japan exported 914,838 mt of semi-finished steel to South Korea in 2019, down 2.3% from 2018, and down 21% from 2017. Latest data for January's semi-finished exports to South Korea stood at 92,131 mt, up 38% from a month ago, official statistics from Japan showed.

"We have started to see more Japanese offers lately since Q4 [2019]," a Manila based re-roller said. "But maybe with the fall in South Korean demand, it might signal a change of trade flow towards more aggressive Japanese exports to Taiwan or to Southeast Asia."