FOCUS: Upcoming polls in Southeast Asia dampen steel prices despite costlier iron ore

Elections in two key Southeast Asian countries have dampened steel demand and prices in recent weeks, despite the rising cost of iron ore.

Billet demand in the Philippines - a key importer in the region - has taken a backseat due to the country’s upcoming general election on May 12, when Filipinos will elect members of the senate and house of representatives, as well as regional and other political office holders.
“There is hardly any buying interest now, with the majority of Filipino buyers holding off on purchases after the start of the official campaigning period on March 29,” a billet trader in Asia said.
A 45-day ban on public works has also been effected at the same time, resulting in lower activity in the building and construction sectors, among other industries.
Fastmarkets MB’s daily import price assessment for billet in Southeast Asia was $475-480 per tonne cfr Manila last Friday April 5, down $10-15 per tonne from $485-495 per tonne on March 25.
Buyers are now looking to buy billet at $470-475 per tonne cfr Manila, while offers are at $480-495 per tonne cfr Manila.
Wire rod prices in the country have remained stable at $535 per tonne cfr Manila in the past week due to thin demand from downstream buyers.
“Some wire rod buyers are not able to tell for sure how their own downstream end users will react to any changes in the political landscape or economic policies, so they have put off buying for the time being,” a Filipino trader told Fastmarkets MB last week.
A recent impasse in the country over a disagreement between the senate and house of representatives over last-minute changes to the 2019 national budget after its approval by a bicameral conference committee also exacerbated demand.
A similar situation is seen in Indonesia, which will hold its presidential and legislative elections on April 17. Presidential candidates Joko Widodo - the incumbent - and Prabowo Subianto have pledged a slew of economic measures to boost the country’s growth further.
“Steel buyers in Indonesia are staying away for the time being until they are clearer about the new industrial and economic policy changes that may be implemented after the elections,” an analyst in China who focuses on exports to Southeast Asia told Fastmarkets MB last week.
A reduction of China’s value-added tax - from 16% to 13% for the manufacturing industry, including steel - on April 1 also led buyers in Southeast Asia to lower their bids in anticipation of lower offers from Chinese mills.
“Factually, the VAT cuts do not have too much of an impact on export prices even though steel mills’ costs become lower. The supply and demand situation in China’s domestic market will have more of an impact on export prices,” a Chinese trader told Fastmarkets MB last week.
The softening of Southeast Asia’s steel market came despite iron ore prices rising in recent weeks after major miners Vale, Rio Tinto and BHP suffered a series of operational setbacks.
Brazilian miner Vale expects its iron ore sales for this year to fall by 50-75 million tonnes from a previous target due to the closure of mines following a deadly accident at its Córrego do Feijão operations in January. This would take its sales to a projected 307-332 million tonnes.
The miner sold 365.6 million tonnes of iron ore and pellets in 2018.
Rio Tinto and BHP also expect their supply to fall after their iron ore operations in Western Australia were disrupted by a tropical cyclone that hit the state last month. BHP expects its production to fall by 6-8 million tonnes this year, while Rio Tinto expects an output loss of 14 million tonnes.
The Fastmarkets MB 62% Fe Iron Ore Index was at $93.08 per tonne cfr Qingdao last Wednesday, the highest since August 2014, before dipping to $92.90 per tonne cfr a day after. The index was at $84.68 per tonne cfr on March 28.
The Fastmarkets MB 65% Fe Iron Ore Index was at a two-year high of $105 per tonne cfr Qingdao last Friday, up $8.60 per tonne from $96.40 per tonne cfr on March 28.
Lee Ken Kiat in Singapore contributed to this report.

Paul Lim

paul.lim@fastmarkets.com

Published

Paul Lim

April 08, 2019

08:35 GMT

Singapore