Chris Newman - Argus Media Singapore - Chinese steel outlook and raw materials market impact
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Market Reporting
Consulting
Events
Chinese steel outlook and raw materials impactPerth
Chris Newman9 March 2016
Copyright © 2016 Argus Media Ltd. All rights reserved.
Market Reporting
Consulting
Events
Executive Summary
• Steel outlook
o China fundamentals
o China policy
o China sentiment
• Feedstocks impact
o Iron ore
o Coking coal
o PCI
o Met coke
Copyright © 2016 Argus Media Ltd. All rights reserved.
Argus is newest entrant in steel space
• Independent UK-based publisher
• The world’s largest privately held price-
reporting agency (PRA)
• Founded in 1970, 750 staff in 23 countries
• Publish 10,000 price assessments a day
• Indexes for coal date to 1980s
• Iron ore indexes launched in 2013
• 2014: non-ferrous
• 2015: ferrous
Copyright © 2016 Argus Media Ltd. All rights reserved.
Stabilization in Chinese steel demand remains elusive
2007 2009 2011 2013 2015
-40%
-20%
0%
20%
40%
60%
80%
100%
-40%
-20%
0%
20%
40%
60%
80%
100%
Property Sales
Housing under construction
Housing starts
China residential real estate sales and construction
0.0
2.0
4.0
6.0
8.0
0%
10%
20%
30%
2007 2009 2011 2013 2015
M2 money supply Total credit
1 yr lending rate 3M SHIBOR
Chinese interest rates and credit indicators
• No signs of improvement in current indicators
◦ Leading economic indicators weak on balance
◦ Little evidence that Chinese industrial slowdown in abating
• But this is not due a total absence of effort to stimulate growth
◦ Chinese interest rate cuts, fiscal ramp up
◦ Signs of improvements in some sectors (home sales rise, money supply increase, credit stabilizes, auto production booms)
Source: Argus Consulting
Source: Argus Consulting
Copyright © 2016 Argus Media Ltd. All rights reserved.
Massive shift in views as China demand declines
0
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2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
2013 view
New view?
Chinese apparent steel consumption mn t
Source: PBC, NBS, Argus
• Radical change in view of growth in the next five years. What changed?
◦ Imbalances became more acute
‐ Credit/GDP
‐ Housing inventory
◦ Deliberate effort to slow economy/credit in 2013
◦ Steel demand has fallen ~6pc in 2015
• 10-day National People’s Congress opened 5 March with Premier Li
giving top priority to development
• National Development and Reform Commission released draft plan
that calls for:
◦ fixed asset investment to increase by 10.5pc
◦ 300 projects launched 2016-2018
◦ 50 new airports by 2020
• Will the spending halt progress on reforms and overcapacity or will
it help ease the transition:
◦ China will spend 100 billion yuan ($15 billion) to retrain and transition
workers in steel and mining
◦ Pledged to cut 100-150 million tons of steel capacity over next five years
• Lending standards remain the key question for steel cuts
Copyright © 2016 Argus Media Ltd. All rights reserved.
China’s 13th five year plan sets new growth plans
Copyright © 2016 Argus Media Ltd. All rights reserved.
Ex-China steelmakers see pain intensified 2H15
280
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305
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285
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305
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315
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335
Jan Feb Mar AprMay Jun Jul Aug Sep Oct NovDec
2013 2014 2015
Source: worldsteel, Argus
Europe, Japan, Korea, Taiwan, India & Brazil
pig iron output
-1pc in 2014
… while ex-China BFs also chase
mn t ann
30
35
40
45
50
55
60
65
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160
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Oct-14 Feb-15 Jun-15 Oct-15 Feb-16
Ferrous scrap HMS1-2 80-20
cfr Turkey
iron ore fines 62pc Fe cfr
China
European EAFs chase China BFs …
Source: Argus
• China steel exports rose by 20% to 112.4mn t in 2015
• Turkey imported 10 times more Chinese semi-finished steel in
2015 than in 2014
• UK shipped 600t of semi-finished products to Turkey in 2015
after supplying 850,000t-1mn t of semi-finished steel to Turkey
in 2013 and in 2014.
• In SE Asia, Chinese exports pushed out Russian HRC, billet and
rebar.
• Argus basic pig iron fob Black Sea price at $175/t for Russian
material and $170/t for Ukrainian on 28 January, declined by
$60/t and $65/t over previous six months, respectively.
Chinese exports targeted SE Asia, CIS, Europe
Copyright © 2015 Argus Media Ltd. All rights reserved.
Is China finally giving world (temporary?) reprieve
Copyright © 2016 Argus Media Ltd. All rights reserved.
Source: MetalPrices.com, Argus
$200
$220
$240
$260
$280
$300
$320
$340
$360
$380
Jun-15 Aug-15 Oct-15 Dec-15 Feb-16
fob Shanghai
fob Black Sea
Hot rolled coil pricesTurkish HRC domestic/export 2/26
Vietnam billet imports 2/26
Tangshan billet 3/2
• Consolidation of China’s steel industry is inevitable, at some point will reduce its iron ore demand.
• Policy announcements for growth and reform as well as swings in sentiment will act on prices over shorter timeframes.
• China’s steel industry will ride out market swings, ramping capacity up or down, until banks reign in lending to inefficient operations and zombie mills.
• China’s steel exports likely will decline on attention shifting to domestic sales this spring and anti-dumping actions piling up, ie. EU risks from May.
• China’s pullback from export markets this year has given the market some balance, but whether it will last is up in the air.
Steel outlook
Copyright © 2015 Argus Media Ltd. All rights reserved.
Feedstock indexes have tracked steel’s downturn
Copyright © 2016 Argus Media Ltd. All rights reserved.
0
5
10
15
20
25
30
35
40
$0
$20
$40
$60
$80
$100
$120
$140
$160
Jan-14 Jun-14 Nov-14 Apr-15 Sep-15 Feb-16
63% lump
premium
58% Fe
62% Fe
65% Fe
Cfr Qingdao spot iron ore indexes
$70
$80
$90
$100
$110
$120
$130
$140
Mar-14 Sep-14 Feb-15 Aug-15 Feb-16
fob Aus low vol
fob Aus mid vol
cfr China low vol
cfr China mid vol
cfr India low vol
cfr India mid vol
Asia-Pacific spot coking coal indexes
Source: ArgusSource: Argus
Australia/Brazil lift share of China iron ore imports
Copyright © 2016 Argus Media Ltd. All rights reserved.
77%
23%
84%
16%
2014 2015
Quality and pricing match ups will be the focus as Brazil and
Australia market share battle intensifies. 1 March 16:
169kt SSFG 61.68pc with 14 February bill of lading traded at
$50.85/t
170kt PB fines 61pc with 18-27 March laycan sold at $50.67/t.
Source: China customs
Iron ore price bounces lend pain and hope
Copyright © 2016 Argus Media Ltd. All rights reserved.
$30
$40
$50
$60
$70
$80
$90
Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16
58% Fe
ICX 62%
Fe
65% Fe
Source: Argus
Australia shifts coking coal sales to Europe, India
Copyright © 2016 Argus Media Ltd. All rights reserved.
$70
$80
$90
$100
$110
$120
$130
$140
$150
$160
Dec-13 Apr-14 Aug-14 Dec-14 Apr-15 Aug-15 Dec-15
Metallurgical coal price markers
Spot fob Aus low-vol hard coking
coalContract fob Aus low-vol hard
coking coal
0
20
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120
140
0
5
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30
35
2010 2011 2012 2013 2014 2015
Tota
l
Australian hard coking coal exports
Total China India
Japan S Korea Europe
mn t
Source: Australian Bureau of Statistics
• US mine supply closures accelerating
• Australian supply now falling modestly
• Signs that Chinese domestic supply is falling faster than pig iron production
• Stocks at mills and coke plants falling. Is demand higher than supply?
Copyright © 2016 Argus Media Ltd. All rights reserved.
Coking coal supply-demand more in balance
Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15
-15%
0%
15%
30%
-15%
0%
15%
30%
Seaborne + Mongolian exports
Chinese apparent domestic supply
Metallurgical coal supply
10
12
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16
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20
22
10
12
14
16
18
20
22
1 5 9 13 17 21 25 29 33 37 41 45 49
2015 2013
2014 2016
Coking coal stock at mills and coke plants
days of use
Source: Macquarie
Coking coal valuation driven by many factors
Copyright © 2016 Argus Media Ltd. All rights reserved.
Coking coal price
Regional differences
Supply and demand
CSR, volatility, fluidity, ash content
Quality consistency
PCI prices supported by lack of thermal switching
Copyright © 2016 Argus Media Ltd. All rights reserved.
$30
$35
$40
$45
$50
$55
$60
$65
$70
$75
$80
May-15 Jul-15 Sep-15 Oct-15 Dec-15 Feb-16
low vol cif ARA
low vol fob Baltic
mid vol cif ARA
mid vol fob Baltic
6000kcal fob Baltic ports thermal
European PCI and thermal spot prices
$40
$45
$50
$55
$60
$65
$70
$75
$80
Jun-15 Aug-15 Sep-15 Nov-15 Dec-15 Feb-16
low-vol fob Aus
low vol cfr China
mid vol fob Aus
mid vol cfr China
6000kcal fob Newcastle thermal
Asia-Pacific PCI and thermal spot prices
Source: Argus
Met coke prices pushed/pulled by China, overseas
Copyright © 2016 Argus Media Ltd. All rights reserved.
$100
$110
$120
$130
$140
$150
$160
$170
$180
$190
$200
Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 Feb-16
62 CSR 65 CSR
Metallurgical coke fob north China
Source: Argus
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Chris NewmanSenior editor, Argus Steel Feedstocks
Email:
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