Today, it is rumored in the market that more than 3 million tons of billets from abroad will be imported into China, raising concerns about whether imported resources will impact domestic steel prices. At present, a large number of international billet imports, mainly due to: affected by the epidemic, foreign steel demand has shrunk sharply. Since January, the cumulative decline in international billet FOB prices has reached US $5088 / ton, especially in Southeast Asia, which has reached its lowest level since 2016. However, the domestic epidemic situation is still under effective control, and steel demand is gradually recovering, resulting in the price gap between the domestic billet FOB price and the Southeast Asian market has been opened to nearly 90 US dollars / ton.
Fig. 1: a list of the price trend of billet FOB in foreign countries
But for this situation, SMM believes: in fact, even if the late billet import volume is true as market rumors, the impact on domestic steel prices is also very limited.
There are three reasons:
First, the total amount of imports reported compared with the total scale of supply in China, it is difficult to pose a threat. China's crude steel output will be 996 million tons in 2019, according to the National Bureau of Statistics. However, according to the current market rumor of more than 3 million tons of billet resources, the total billet import in 4 months accounts for only 0.31% of the national crude steel output, and even only 3.95% of China's crude steel output in March.
Second: the scale of billet imports has not increased significantly compared with the scale of billet imports in recent months (December 2019 to February 2020). Since the second half of 2019, China's billet imports have increased greatly, and reached a historical peak of-864000 tons in December 2019. Even in January-February, which is deeply affected by the epidemic and the Spring Festival, the cumulative billet imports are also 1.204 million tons. According to market rumors of 4-7 four months, billet imports at the scale of 3.121 million tons, not explosive growth, even less than last year's peak.
Fig. 2: a list of billet imports in China
Source: general Administration of Customs
Third: from the import structure, most of the imported billets are plain carbon billets, and the products that can be processed are relatively limited.
Fig. 3: a list of billet imports in China
Source: general Administration of Customs
Although most of the imported billets are billets, and the quantity is obviously increased compared with the previous period. However, due to the lack of alloy composition of plain carbon billet, it is difficult to process into standard building materials products, so most of the finished billets appear in the market in the form of profile steel or non-compliant building materials products. The impact on the mainstream market is relatively small. As scrap to participate in the production of long and short process steel plants, but also does not have the cost advantage.
Overall, the "massive" import of billets has a greater impact on the emotional end than on the actual fundamentals. At present, the domestic steel market is still weak under the high output of almost full load production of long and short process steel mills, as well as the double high pressure of high inventory, but the demand side is also recovering, and the room for decline is also limited.
