FOCUS: S Korea’s coronavirus outbreak compounds Chinese stainless steel woes

The novel coronavirus (2019-nCoV) outbreak in South Korea, the largest export market for Chinese stainless steel, is likely to apply additional pressure on stainless steel prices in Asia, sources told Fastmarkets this week.

Although the actual impact will be determined by the severity of the measures that the South Korean government undertakes, buyers are likely to exercise more caution while they observe the situation, a trader in northern China said.
The number of coronavirus infections in South Korea shot up to some 1,600 within the span of about a week from about 30, according to statistics released by the republic’s Centers for Disease Control & Prevention. This makes South Korea the country with the second-highest number of infections, behind China.
South Korea has also reported 12 deaths from Covid-19, the disease that the coronavirus causes.
China exported 195,035 tonnes of stainless flat steel under HS codes 721913 and 721933 to South Korea in 2019, which accounted for a fifth of its total exports of 941,534 tonnes for the year, according to Chinese customs data.
With Chinese stainless steel producers already reeling from sluggish domestic demand and logistical bottlenecks that have resulted in rising inventory levels, sentiment was further dampened by concerns of a smaller appetite from the key market.
Sources in China have attributed the inflated inventory levels within the country to the failure of steelmakers to curb production sufficiently.
“Generally speaking, demand over the past week has been stronger than in the preceding few weeks, but still low,” a trader in Wuxi said.
The same trader, quoting a local industry information provider, said that Wuxi had accumulated 460,000 tonnes of stainless flat steel, 32% higher than at the end of January.
Market participants said that an apparent slowdown of the spread of the virus in China had led more truck drivers and workers in downstream sectors to return to work.
But many companies, including those in logistics as well as stainless steel-consuming sectors, have kept their operations suspended.
“The surging inventory levels cannot be easily reduced in the next few weeks and that is likely to further weigh on Chinese stainless steel prices,” an industry analyst in Shanghai said.
Such a trend can already be seen in both domestic and export prices.
Fastmarkets’ weekly price assessment for stainless steel cold-rolled coil 2mm grade 304 domestic, ex-whs China in the country’s major market of Wuxi was 13,500-14,400 yuan ($1,923-2,051) per tonne including value-added tax on Wednesday February 26, down 100-500 yuan per tonne from a week earlier. This is the lowest the assessment has been since July 2017.
Fastmarkets’ weekly export price assessment for stainless steel cold-rolled coil 2mm grade 304, fob China fell by $50 per tonne on the week to $1,780-1,830 per tonne on Wednesday. This is the lowest the assessment has been since it was launched on July 31, 2019, when it was at $1,980-2,010 per tonne.
Fastmarkets’ weekly export price assessment for stainless hot-rolled coil grade 304, fob China too has fallen to its lowest since its launch on July 31, 2019, when it was at $1,880-1,910 per tonne. It was at $1,710-1,760 per tonne on Wednesday.
Over the past week, Chinese stainless CRC was sold at $1,780-1,830 per tonne fob China to various destinations including Southeast Asia, while Chinese stainless HRC was sold at $1,730-1,760 per tonne fob China.
Export offers for Chinese stainless CRC were heard at $1,830-1,850 per tonne fob, or about $1,850-1,870 per tonne cif East Asia.
Chinese stainless HRC was available at $1,730-1,770 per tonne fob, or about $1,750-1,790 per tonne cif East Asia.
While this month’s weakening of the Chinese yuan against the dollar has made Chinese exports more competitive, this effect has been at least partially negated by the depreciation of other Asian currencies, including the South Korean Won, amid the spread of the coronavirus outside China.
The South Korean currency was trading at 1,214 Won to $1 on Thursday February 27, compared with about 1,160 Won per $1 on January 20, when the country reported its first case of coronavirus infection.
The exchange rate for the Chinese currency was 7.0215 yuan per $1 on Thursday, compared with 6.8876 yuan to $1 on January 23, the last working day before the Lunar New Year holiday, according to China’s State Administration of Foreign Exchange.
Indonesia’s response
Market participants in China are also cautious about how stainless steel producers in other parts of Asia, particularly in Indonesia, would price their products if demand from South Korea was substantially diminished.
Competitively priced Indonesian stainless steel had quickly gained popularity in South Korea in the past year. Regional prices could be depressed further if supply that is typically sent to South Korea is sold elsewhere, the trader in northern China said.
South Korea bought 167,727 tonnes of Indonesian stainless flat steel under HS codes 721913 and 721933 in 2019, which accounted for some 37% of its total imports of 453,744 tonnes, according to statistics from South Korea’s customs agency. This makes Indonesia its second-biggest supplier, after China.
South Korea had imported 78,734 tonnes of Indonesian stainless flat steel under the same HS codes in 2018 - about 15% of all imports.
Chinese stainless steel made up the largest share of all imports into South Korea under the same HS codes in 2019, at around 45%. This compares with some 60% in 2018.
Offers for stainless CRC and HRC from Southeast Asia were unchanged in the past week, at $1,850-1,950 per tonne cif East Asia and $1,750-1,850 per tonne cif respectively.
Fastmarkets’ weekly import price assessment for stainless steel cold-rolled coil, Asia grade 304 (2mm 2B), cif East Asian port was $1,800-1,850 per tonne on Wednesday, down by $30 per tonne from $1,830-1,880 per tonne a week earlier.
Fastmarkets' weekly price assessment for stainless steel hot-rolled coil Asia grade 304, cif East Asia port was $1,720-1,770 per tonne on the same day, down by $10 per tonne from $1,730-1,780 per tonne a week earlier.
A trader in southern China said prices could come under further pressure from softening raw material prices. These include the bellwether price for nickel, a major raw material in the production of many grades of stainless steel.
This will enable producers to provide additional discounts to attract customers during this period, he said.
The three-month nickel contract on the London Metal Exchange ended Wednesday’s trading session at $12,360-12,365 per tonne, down $2,000-2,005 per tonne from a year-to-date high of $14,360-14,370 per tonne on January 16.
Despite the likelihood of weakened demand in South Korea, market participants are not worried that suppliers in the country would attempt to increase their exports.
“South Korean mills mainly focus on value-added or customized products, and are unlikely to export any commodity-grade material because their prices are typically uncompetitive when compared with those offered by Chinese or Indonesian steelmakers,” a steel processor source in eastern China said.

Jessica Zong

jessica.zong@fastmarkets.com

Lee Ken Kiat

kenkiat.lee@fastmarkets.com

Published

Jessica Zong

Lee Ken Kiat

February 27, 2020

09:25 GMT

Shanghai, Singapore