Due to the Chinese New Year and subdued end-users demand, the steel market has remained quiet in China, with much less price variation in February compared to the preceding month. Some buyers have been following the wait-to-see approach and drawing on inventories before the festival season. In fact, some producers had already stopped the production a week before the festivities. Meanwhile, the market also remained quiet in Brazil, due to the carnival holidays, with the price increased announced in January being absorbed by customers.
In the US, the long-awaited decision from the U.S. Commerce Department was finally announced. It has recommended at least 24% tariffs on all steel products from all countries. President Trump has until April 11 to announce whether he is going ahead to impose tariffs and which countries to target. However, the European Union and China did not wait and declared that they would retaliate. Moreover, South Korea and India already started a dispute against the US in the WTO.
In India, the new government budget for 2018 introduced an import duty on automotive parts. As a result, demand for domestically produced flat steel is expected to increase, so domestic prices. On the other hand, the budget has not given any relaxation for previously imposed 28% GST on washing machines and some other white goods items, which could hamper flat steel demand in the white goods sector.
In Europe, prices for domestic HRC, CRC and HDG increased between €10-20 /tonne as anti-dumping measures helped to reduce competition from cheaper imports. Meanwhile, in Italy, ArcelorMittal, which is negotiating for the purchase of Ilva, was called by the EU to provide clarification on the possible diminution of competition in several flat steel products resulting from the merger of the two companies. The European Commission will announce the verdict on 4th April. In Russia, prices of HR sheet have also continued to rise in February, despite low demand due to the winter season. Many end-users which managed to purchase large stocks of steel before the price rise in December have not yet exhausted their reserves and therefore are waiting for prices to cool down.
Outlook: The US tariffs against steel could escalate to a trade war
Key countries where the US has a surplus are expected to be exempted from the tariffs. However, this could represent a huge blow to countries such as Brazil (which exports the majority of its slab to the US), South Korea and Japan. These countries, along with China and others are probably going to retaliate, which could escalate a trade war. The main beneficiary would be China, which already virtually exports no flat steel to the US and could use this situation to gain space in the international arena, forging deals with affected countries. Given that most of the end-use sectors in the US would be compelled to source domestically produce steel will highly likely to inflate the cost of production, resulting in the price hike.
In Brazil, the National Institute of Steel Distributors (Inda) announced that it expects that domestic sales of flat steel to grow by over 4% year-on-year in 2018. This is in line with our forecasts. However, presidential elections in the second half of the year is a downside risk which could reduce this growth by up to 0.5%. Similarly, in Russia, demand is due to return to growth as the winter season ends. However, presidential elections are also on the radar and could lead to some instability.
In India, flat steel prices are likely to remain high, due to the closure of some iron ore mines. At the same time, demand from white goods sector is expected to increase in March, due to the start of summer season, increasing production of air conditioners and refrigerators in particular. Likewise, Commodity Insides expects steel demand in China to show some strength in March, after the Chinese New Year. As a result, prices are also likely to go up again after mid-March.
In Europe, the recovery of the steel market will continue into 2018 and will register a positive growth as the region returns to growth, and the full effects of the protectionist measures taken by the end of 2017 will be felt.
This insight is an excerpt from our Flat Steel Insider. To learn more about our flat steel expertise and reports please contact us at firstname.lastname@example.org