Steel News from YK-8.2

Сhinese HRC export prices stable on slower demand from abroad

China / Flat Products

Chinese HRC exporters have been keeping prices stable since late July on better sales last week. However, demand

from abroad was worse this week, as most buyers expected lower quotes from China.

On Wednesday, August 1, Chinese mills mostly offered HRC (SS400, 3‑12 mm) at $580‑585/t FOB, the same as a week

ago. However, the number of orders from foreign customers went down due to stable prices, Chinese sellers report.

Last week, a major producer sold a big lot of HRC (2.3‑2.5 mm) to Vietnam at $595/t CFR ($585/t FOB), which was

slightly lower than the offer level. Now this company can offer material at the same price, but no interest from Vietnam

has been heard recently. Especially, since steelmaker sold out allocation for September shipment, while “most buyers

think they have enough time to wait for purchasing October shipment at a lower price,” a Chinese trader based in

Vietnam told Metal Expert. A splash of international demand for Chinese material last week led to the same situation

at many other Chinese mills, market sources reported.

Forecasts for prices in the near future are quite different in the market. Some insiders believe that firm local consumption

and strong billet quote rise will support the whole steel market in the coming weeks. However, “local demand seems

to be strong only for longs, while actual purchases of flats are getting worse now,” another major Chinese trader said.

Besides, mills aim to export more in the near future, as expectations for local demand in September-October are

not very optimistic. Thus, even if local sales are good now, suppliers are unlikely to further increase export prices for

October shipment.

Healthy steel market to make iron ore drop short-living

China / Iron Ore

Iron ore dropped along with futures on aggravating international trade tensions. However, positive economic data and

strong demand for steel are likely to prevent the prices from going down further.

Australian iron ore fines 62% Fe lost $0.8/t coming to $66.2/t CFR on August 1 following a daily slump of RMB 13/t ($1.9/t)

in September contracts on the Dalian Commodity Exchange. Steel futures fell as well on another round of escalation of

the US-China trade conflict, with October rebar on the Shanghai Futures Exchange decreasing by RMB 32/t ($4.7/t).

The administration of Donald Trump mulls to propose imposing a 25% tariff on $200 billion of Chinese goods imports,

according to media and market sources. “The market today was affected by the trade war which may have serious

consequences for both countries’ economy,” a Chinese analyst told Metal Expert.

At the same time, the raw material drop will not be lasting, most insiders predict. The worries about steel supply shortage

are getting stronger as new production cuts were announced in Tangshan during August 1‑5 while the demand for

finished products remains robust. All steel mills in the city have to reduce operations at shaft furnaces and sintering

capacities by 50% over the period. In these conditions, Tangshan billet rose by another RMB 20/t ($2.9/t) in a day.

Besides, the recent economic data added optimism to market sentiments, as China’s Steel PMI improved by as much

as 3.2 percent points (p.p.) to 54.8% in July.

“Iron ore is likely to stay at high level as steel market is healthy, though raw material oversupply will last for a long

time, I believe,” a market source commented. No deals were reported to be done on trading platforms by the time of

publication.

South Korean steel export 9.4% down in June

Far East / Flat Products, Long products

Steel export from South Korea decreased in June due to trade restrictions worldwide, especially in the US, and decline

of shipments to some export destinations in Asia. Safeguard regulations in EU and North America will affect South

Korean exports later this year.

Steel export from South Korea totalled 2.4 million t in June, losing 9.4% month-on-month and 9% year-on-year, according

to latest data of the Korea Iron and Steel Association. The main reason behind such a decrease was stricter

trade restrictions in the US which was one of the main export destinations for South Korean steel products. According

to the preliminary estimate of the Department of Commerce, Enforcement and Compliance of USA, in June total steel

imports from Korea was 186,389 t, 46% below the results in June last year. As a result, market participants are looking

for alternative destinations. In particular, Middle East and North Africa is considered as the most promising sales

markets for South Korean line pipes. In 2017 exports of welded pipes to the Middle East increased by 87%, Metal

Expert reported earlier.

Steel export to the EU remained relatively stable during the corresponding period. Thus, HRC imports from South Korea

to Europe decreased by 32% to 211,000 t in the first 5 months of this year, while coated steel supplies increased by

33% to 594,000 during the corresponding period, according to Eurofer. Nevertheless, steel export to the EU is likely

to decrease as the EU launched safeguard measures to prevent a surge of steel imports into the bloc following the

U.S. imposition of tariffs. An investigation of corrosion-resistant steel sheet that was launched in Canada in late July

also may have some impact on South Korean steel exports in the future.

There is a downward trend in some Asian export destinations. South Korea reduced exports to Vietnam, China and

Japan during Q1, according to Metal Expert data. Meanwhile, export to India went up amid strong demand for highgrade

auto steel.

Rio Tinto’s H1 results up on higher sales, better productivity

China / Iron Ore

Rio Tinto reported strong financial results for H1 2018, with improvement being attributed to higher sales volumes and

productivity improvement despite the price decrease for some of main products.

The company managed to increase its underlying earnings by 12% to $4.416 billion during January-June “with increased

volumes of iron ore, bauxite and copper and higher prices for aluminium and copper, offsetting the impact of

lower iron ore prices and the divestment of Coal & Allied,” according to Rio Tinto’s report.

In particular, the miners sold 168.8 million t of iron ore over the period, 9% more than in H1 2017. At the same time, the

average steelmaking ingredient price in the first half of this year dropped by $5.1/t y-o-y to $69.3/t CFR, Metal Expert

data shows. As a result, higher shipments offset the impact of falling iron ore quotes and caused an improvement of

1% in the segment’s underlying earnings.

Productivity improvements, including AutoHaul project development, had a positive impact on the miner’s results

as well. The company returned as much as $3.2 billion to its shareholders owing to more efficient operations, while

another $4 billion were get from aluminium and coal asset disposals. However, the net debt surged by $1.4 billion to

$5.2 billion in H1 2018.

Rio Tinto remains optimistic both for short and long term, being on track to further productivity enhancement, which is

expected to bring “additional cumulative free cash flow of $5.0 billion from the start of 2017 to the end of 2021, including

$0.4 billion in the second half of 2018.”

Rio Tinto upgrades portfolio by divesting coal, developing iron ore assets

Australia / Iron Ore, Coal

Rio Tinto has upgraded its portfolio by leaving coal business and focusing on core products including iron ore.

The miner said on August 1 it had completed the sale of all coal assets for $3.95 billion. The sale of the Kestrel underground

coal mine to EMR Capital and PT Adaro Energy was accomplished for $2.25 billion, as stipulated by the

agreement signed between the companies in March. Besides, as Metal Expert reported earlier, the Hail Creek coal

mine and Valeria coal development project were obtained by Glencore at $1.7 billion. Production guidance was revised

by the miner accordingly, to 4.0 million t of hard coking coal and 2.5 million t of thermal coal, Rio Tinto’s note reads.

The company quit coal business to “leave the portfolio stronger and more focused on delivering the highest returns

through targeted allocation of capital.”

Rio Tinto is now aimed at replacing its depleting iron ore mines by developing new production sites. Today it has approved

$146 million of funding for the Koodaideri iron ore project ahead of final investment decision expected by the

year-end. The funds will be put into initial works at the project, such as detailed engineering work, the development of

a rail construction camp and the first stage of an accommodation camp, according to the miner’s note.

“Subject to final approvals, Koodaideri will incorporate all of that knowledge to enable us to build the smartest, safest

and most efficient mine we’ve ever constructed,” Rio Tinto Iron Ore CEO Chris Salisbury said. Low-cost and high-quality

ore from the new intelligent mine will be a part of the Pilbara Blend product from 2021, when commercial production

is expected to start.

JFE Steel’s income up by 32% in April-June

Far East / Flat Products

Japanese major steel producer JFE Steel managed to improve financial results and upgrade forecast for the whole

FY 2018 (April 2018 – March 2019) amid higher steel prices and strong demand in the country, while production was

stable.

In April-June, JFE Steel posted ordinary income at JPY 64.4 billion ($577.4 million), up by 32.5% year-on-year, according

to the company’s report. In particular, net sales increased by 7.7% y-o-y to JPY 685.9 billion ($8.8 billion) amid

strong demand in the country along with rising prices on steel products. Notably, operating results of the producer

in Q1 FY 2018 stayed stable compared with the same period of the last financial year. Thus, JFE Steel crude steel

production totalled 7.1 million t, while sales volumes were estimated at 6.1 million t during the period under review.

The steel giant improved outlook for financial results in the whole FY 2018. Thus, ordinary income is expected at

JPY 200 billion ($1.8 billion), up by 25% from JPY 160 billion ($1.4 billion) forecasted previously.

Kobe cuts steel business profits guidance on production disruptions

Far East / Flat Products

Japanese steel producer Kobe Steel posted reduction of operation and financial results in Q1 of FY 2018 (April-June)

despite strong demand inside the country. Moreover, technical issues made the company lower the full year profits

guidance in the steel business.

Kobe Steel’s total ordinary income fell by 55%, coming to JPY 12.7 billion ($114 million) in April-June. At the same time

financial performance of the steel business of the company was even worse. Despite higher prices and strong demand

in the automotive industry in Japan Kobe Steel posted 94% drop of ordinary profit to just JPY 0.8 billion ($7.2 million).

“Upstream process equipment was shut down at Kobe Works and consolidated process was in Kakogawa Works,” the

company said in the report. Production disruptions led to delays in shipments and higher costs. Crude steel production

and sales lost 11% and 8% y-o-y, coming to 1.72 million t and 1.39 million t respectively.

Moreover, the company predicts that steel output will be still reduced in current quarter. As a result, full year target for

ordinary income was downgraded by JPY 10 billion ($90 million) to JPY 3 billion ($27 million). “Profits are anticipated

to decrease, impacted by higher costs for distribution and auxiliary raw materials costs, in addition to lower crude

steel production and lower sales volume of steel products from temporary trouble with the production equipment for

sintered ore,” the company commented.

At the same time Kobe Steel’s total full year profit guidance was kept at the same level – JPY 35 billion ($315 million)

as losses from the steel business are expected to be offset by higher sales of excavators in China.

Hoa Phat Group increases revenue and output in H1 2018

South East Asia / Long products, Tubes & Pipes

Vietnam’s Hoa Phat Group (HPG) posted better operational results in H1 2018 owing to growing demand for construction

steel in Vietnam. The company remains optimistic about its prospects and expects further performance improvement

this year.

Over the period under review, the revenue of HPG added 30% year-on-year, coming to VND 27.6 trillion ($1.18 billion),

according to the company’s financial statement. Net profit after taxes surged by 27% to VND 4.4 trillion y-o-y. According

to the HPG, the results mean the company has already reached 55% of its annual profit target. Such a sharp increase

was attributed to growing sales volumes amid strong demand in the country.

The company strengthened its market positions, increasing finished steel output by around 8% to 1.1 million t y-o-y

despite the fact that HPG had to close one blast furnace for maintenance and equipment repairs for two months,

according to its official release.

Notably, the company’s outlook for the next half of the year is very optimistic. In particular, this year HPG targets

to reach a VND 55 trillion ($2.36 billion) revenue, raising it by around 13% y-o-y. HPG also aims to get more than

VND 100 trillion ($4.4 billion) in revenue by 2020, the year Hoa Phat Dung Quat steel complex is supposed to become

fully operational, Metal Expert learnt. With the launch of the new facility, HPG will add at least 4 million tpy to its annual

steelmaking capacity, strengthening leadership in the longs segment and entering the HRC market. The completion

of the project is expected by the end of 2019.

Vedanta cancels new steel plant construction in India

India / Flat Products, Long products

Vedanta Resources cancelled its plan to set up a new steel plant in India after acquisition of the stressed asset in the

country which allowed it to enter the steel market.

Vedanta reversed its decision to build greenfield integrated steel plant in Jharkhand, according to the Economic Times.

The company purchased Electrosteel Steel, bankrupt steel producer in India, that allowed the company to add value

to its iron ore business in the country. Notably, annual capacity of Electrosteel Steel is estimated at 1.5 million t and

may be expanded to 2.5 million t while the capacity of new plant was projected at 1 million tpy, Metal Expert learnt.

The termination of the mill construction was made due to higher investments for greenfield steel project, on which the

company was planned to spend about INR 69 billion ($1 billion). At the same time Vedanta purchased Electrosteel

Steel for INR 53 billion ($771 million).

Moreover, Vedanta can develop steel production in Bellary assets in Karnataka. As a result, the producer will likely

to improve its financial performance in a short term. Notably, in Q1 of FY 2018 (April-June) the company increased

EBITDA by 31% year-on-year to INR65.3 billion ($952.6 million), according to Vedanta’s report.

Prices for CIS iron ore keep on rising

CIS / Iron Ore

Prices for CIS iron ore keep on rising due to better demand in the main outlets. Suppliers are optimistic and expect to

book the September material shortly.

European consumers decided to restock. “Importers finally revised their buying policy and are willing to stop purchasing

for the current needs,” a market participant told Metal Expert. Expectations of better demand in the global steel market

in autumn contributed to the situation among others. Besides, consumers are fearing that issues with the material

supply from Ukraine in July, when several contracts were in jeopardy owing to the rolling stock shortage, may repeat.

The situation stabilized in the country by the end of the month, the transportation issues were partially resolved. As

a result, importers stepped up the material purchases from Ukraine. Nevertheless, solved logistics issues somewhat

limited exporters’ intentions to raise the quotes. Whereas initially Russian exporters wanted to increase the tags by

$5‑6/t, the final adjustments were only $2‑3/t amid wider supply.

Iron ore prices are still on the rise in China, following the quotes for finished steel, but better demand is reported only

in the HVA segment. In the circumstances, sales of the CIS material plunged, as manufacturers are focused on sales

of more profitable products.

The uptrend is unlikely in the coming weeks, as suppliers are interested to sell off the available volumes as soon as

possible. Moreover, some Ukrainian exporters are ready to provide discounts for large batches (above 100,000 t),

which can disfavour CIS producers of the merchant material.