South Korean steelmakers are struggling with surging raw material prices and low-priced imports from Japan and China. Chinese mills can flood Asian markets with steel as they refocus on export markets. HRC offers from China stood at $525-535/mt cfr Vietnam on Friday.

 

Most Korean mills, major suppliers of finished flat steel, are not being able to compete in the global market while domestic steel demand remains weak. The profitability of these mills has been impacted by a sudden spike in scrap prices in the last few months.  

 

Rise of Japanese imports 

Japanese steelmakers aggressively offered finished steel to South Korea and Vietnam markets. According to the Korea Iron & Steel Association, from Jan-Aug 2020, total imports of H-section steel into Korea dropped by 24.2pc to 271,871mt from the prior year period. Imports from Japan, however, increased 55.1pc to 114,835mt. The disproportionate rise of imports from Japan accounted for 42pc of the total imports against 22pc in 2019, while just 13pc in 2017. Rising imports from Japan has become a cause of concern for most Korean mills. 

 

Japanese steelmakers have traditionally maintained their finished flat prices higher at least $20/mt than other Asian suppliers on high-quality standards. However, a sharp drop in domestic demand in Japan during the COVID-19 outbreak forced Japanese steelmakers to either suspend productions or liquidate steel inventories at a discount in the global markets. Despite idling of blast furnaces by JFE and Nippon Steel, overall Japanese steel prices stayed lower by $20-40/mt than from Vietnam, Malaysia and India. South Korean mills have been thus struggling to sell high-quality steel for more than a quarter.  

 

HRC exports, domestic scrap prices drop 

Chinese mills resume exports at prices in line with deals from Russia $525‑535/mt cfr Vietnam this week, which are lower than offers from Indian, Korean, and Japanese suppliers. Last week, the prices for Chinese HRC (SAE 1006) ranged at $535‑540/mt cfr Vietnam, according to Davis sources. Chinese mills could flood Asian markets again with low-priced exports which can further impact the business of Korean mills. To reduce costs, mills have lowered their domestic ferrous scrap purchase prices by KRW10,000/mt ($8.6/mt) successively for the last two weeks, despite firm prices, internationally. 

 

Iron ore prices unlikely to plunge

Late last week, the spot iron ore prices rose to a six-and-half year high. Iron ore prices have increased as much as 40pc in the last six months to $130/mt cfr China against $80/mt cfr China levels in early March. It is expected that iron ore prices would remain in the range of $100-130/mt for the rest of 2020 amid projection of sustained steel demand. In August, China’s Manufacturing Purchasing Manager’s Index (PMI) rose from 52.8 in July to 53.1, indicating steady growth in economic activities and steel demand. 

 

($1=KRW1,161)

 

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